My question is about the possible tax advantages of putting money in trust for the benefit of my adult son who is in the zero income tax bracket. He has multiple challenges and is likely to be in a zero or low tax bracket all of his life. Is it possible to draft a trust so that in the early years the trust can accumulate income and not make any distributions, but have the income in those years be taxed at the beneficiary's tax rate?
I will be the grantor and make gifts to the trust. I am prepared to make the gifts irrevocable and retain no reversionary or income interest in the trust. I am also prepared to draft the trust so that the trustee must distribute all trust assets to him and him alone during his lifetime, and only to his estate should he die before the trust assets are exausted.
The trust will hold only mutual funds, so the only trust income will be dividends, capital gain distributions, and realized capital gains. I live in Ohio which allows for the trust instrument to specify that capital gains be allocated to income which would include them in DNI. This means that all trust income actually distributed can be taxed at the beneficiary tax rate. But I want the same tax treatment for trust income NOT distributed.
I know that if I draft the trust to give my son a Subpart E Section 678 power to demand distribution of all of the trust assets at his discretion, and if he doesn't exercise this right and allows the trust assets to remain in trust, then taxation at his tax rate will be allowed. However, I do not want to do this. I don't want him to be able to spend the funds at a young age.
Any ideas? . . . Thanks!
I will be the grantor and make gifts to the trust. I am prepared to make the gifts irrevocable and retain no reversionary or income interest in the trust. I am also prepared to draft the trust so that the trustee must distribute all trust assets to him and him alone during his lifetime, and only to his estate should he die before the trust assets are exausted.
The trust will hold only mutual funds, so the only trust income will be dividends, capital gain distributions, and realized capital gains. I live in Ohio which allows for the trust instrument to specify that capital gains be allocated to income which would include them in DNI. This means that all trust income actually distributed can be taxed at the beneficiary tax rate. But I want the same tax treatment for trust income NOT distributed.
I know that if I draft the trust to give my son a Subpart E Section 678 power to demand distribution of all of the trust assets at his discretion, and if he doesn't exercise this right and allows the trust assets to remain in trust, then taxation at his tax rate will be allowed. However, I do not want to do this. I don't want him to be able to spend the funds at a young age.
Any ideas? . . . Thanks!
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