Planning Briefs
Should You Turn Off A Trust?
Published Tuesday, February 11, 2014 at: 7:00 AM EST
It may have been advantageous for you to set up a trust years ago, but suppose your circumstances have changed. Are you unconditionally locked into the trust for a term of years or could you undo it? And, if it is legally permissible to shut down the trust, should you do it?
The first question is easier to answer, although it brings its own complexities. Let’s start with the assumption that we’re dealing with a garden-variety “grantor trust.” (Other rules will apply to other types of trusts.) Generally, a grantor trust is one in which you, the grantor, possess control or have power over the trust’s administration. For instance, retaining the right to revoke or amend the trust will cause it to be treated as a grantor trust. In addition, if you maintain control over the assets in the trust, it is deemed to be a grantor trust.
This is often significant for various tax-related purposes. With a grantor trust, the income generated by the trust will be taxed directly to the grantor. Furthermore, the assets will be included in your taxable estate. A variation on this trust type, the intentionally defective grantor trust (IDGT), lets you transfer assets to a trust in which you are not the trustee. That way, you can avoid having those assets included in your estate.
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