Money held in Trust at the death of a parent…
A client of mine died this year leaving about $150k to be split evenly and to be put in a Trust (thru the client’s Will) until they each turn 40 years old (oldest is only 29). How should each of the children’s Trust accounts be titled? The accountant have to prepare a separate tax return on each of the three Trust accounts each year? At what rates? The lone trustee is also a client and she is looking for me for help. Thanks!
Permalink Submitted by Bruce Steiner on Wed, 2010-10-06 18:54
I am a strong proponent of providing for children in trust rather than outright, to keep the children’s inheritances out of their estates for estate tax purposes, and to keep better protect the assets against potential creditors (including spouses). But absent some special circumstances, it doesn’t make sense to run a $50,000 trust to age 40 for an adult child. If the child reaches age 40 and the trust ends, the assets will be thrown into the child’s estate anyway, and the assets will no longer be protected against potential creditors (though depending on state law and whether the funds can be traced, they may remain exempt from equitable distribution).
If the trustees have discretion to do so, they may want to consider terminating (or not establishing) the trusts and distributing the assets to the children outright. If the trustees do not have discretion to do so, they may wish to consider seeking court approval to do so, assuming the applicable state law has some provision for termination of small trusts.
If the trusts are set up, they’ll file annual income tax returns, but on $50,000 of assets, they probably won’t have much income (after deducting the cost of preparing the returns), so they’ll probably be in the 15% bracket.