Trust — JOHN DIFINI

A legal arrangement in which a Grantor gives to a Trustee the right to hold and invest assets for the benefit of a Beneficiary(s). A Trustee’s duties involve “Duty of Loyalty & Impartiality” – The Trustee’s Fiduciary duty is to the Beneficiaries (as opposed to himself or a 3rd party), and the Trustee cannot favor one Beneficiary over another.

In addition to tax savings, most trusts exist to provide for the financial future of a minor child or mentally incompetent person. Additional advantages include:

Unlike UTMA/UGMA, Beneficiary does not automatically gain control at “age of majority” (e.g. 21)
Faster and cheaper than a will
Avoids probate, which is time-consuming, expensive and not private
Eliminates challenges to the estate (just disinherit)
Potentially avoids estate tax

A trust can be Simple or Complex. A Simple Trust must distribute all income (Distributable Net Income – DNI) to Beneficiaries, but a Complex Trust may retain some DNI to add to the corpus/principal.

Not only can trusts be categorized as Simple or Complex, but they can also be categorized as Revocable or Irrevocable as shown by the following summary:

REVOCABLE

Income Tax* for Living Grantor:
- Grantor – Yes
- Trust – No
- Beneficiary – No
Income Tax* for Deceased Grantor:
- Estate – No, but assets count towards the value of estate**
- Trust – Yes on income NOT distributed (Complex)
- Bene – Yes on income distributed (Simple or Complex)

IRREVOCABLE

Income Tax* for Living Grantor:
- Grantor – No, except trust income used for the benefit of Grantor or Grantor’s spouse
- Trust – Yes on income NOT distributed (Complex)
- Bene – Yes on income distributed (Simple or Complex)
Income Tax* for Deceased Grantor:
- Estate – No, and assets do NOT count towards the value of estate except certain property transferred within 3 years of death (e.g. if Grantor maintains an interest in the property – e.g. still lives in house)**
- Trust – Yes on income NOT distributed (Complex)
- Bene – Yes on income distributed (Simple or Complex)

*Income includes interest, dividends, and capital gains
**Estate Tax – tax on the value of the estate; only triggered when amount is greater than $5 million