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Beyond the A/B Trust: Advanced Estate Planning Techniques

I. IRREVOCABLE TRUSTS

Functions. An irrevocable trust can shift property value and income to:

  • Build an educational fund for a child;
  • Provide current income for an adult child;
  • Provide current income for an aged parent; or
  • Provide asset protection for others.
    • If the beneficiaries do not have immediate access to trust funds, those funds are unavailable to their creditors (until an actual distribution).

Example:  Parent, in a 45% tax bracket must earn approximately $1,900 (before tax) to transfer approximately $1,000 by gift.  By deflecting income into trust, the income tax liability could be considerably less than the $900 otherwise payable by Parent.  The donee could use his or her personal exemption and a lower tax bracket to enable substantial tax savings to accrue within the family unit, assuming the “kiddie tax” is not applicable.

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