Advanced Federal Taxation

timer Asked: Dec 8th, 2015
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Question Description

"Types of Trusts" Explain the key points to consider when setting up a trust for a beneficiary to reduce the tax burden on the beneficiary. Provide a rationale to support your findings.

Differentiate between two (2) types of trusts that you would consider for your own family. Identify the primary advantages and disadvantages of selecting each. Provide support for your findings

Tutor Answer

School: UIUC

Thank you for the opportunity to help you with your question!

When setting up a trust for a beneficiary, one should consider the available assets so as to ensure equal distribution to the heirs. You should also consider the amount of future tax so as to ensure you do not expose your heirs into much taxation. Also consider the cost of setting up the trust so that it does not leave you bankrupt.

There are two types of trust to consider for a family, they include

1. credit shelter trust-in this type of trust, you write a will bequeathing an amount to the trust up to but not exceeding the estate-tax exemption. Then you pass the rest of your estate to your spouse tax-free. Advantageous because there's an added bonus, Once money is placed in a bypass trust, it is forever free of estate tax, even if it grows and disadvantageous because it does not exceed estate tax exemption.

2. generation skipping trust- this kind of trust allows you to transfer a substantial amount of money tax-free to beneficiaries who are at least two generations your junior - typically your grandchildren. This is disadvantage because it is not your next of kin who are the beneficiaries but advantageous because it is tax free.

Please let me know if you need any clarification. I'm always happy to answer your questions.

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Good stuff. Would use again.

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