Legal Question in Wills and Trusts in California

irrevocable trust

It has been suggested that an irrevocable trust with the following features would be suitable for me.

I would transfer my assets into the trust and recieve Certificates of Beneficial Interest in return. I would then name(hire) an independent trustee and a relative or friend as another trusee. I should also name another person to fire the independent trustee if necessary. The independent trustee would then hire me to manage the trust affairs. I understood that the trust would file a 1041 tax return as a complex trust. Further, under the tax laws, I could have some beneficial results onmy total taxes. This would be achieved by having a skilled CPA perform the tax returns.

Are these trusts Legal? Do I stand a high probability of being audited? If audited, could the IRS or court find that the trust is abusive? Can A truly skilled lawyer avoid problems? Are there problems with the trustee that can be avoided? As you can see, I have a number of concerns, please provide what information that would be appropriate.


Asked on 1/21/98, 2:19 pm

2 Answers from Attorneys
Chris Johnson Christopher B. Johnson, Attorney at Law

Irrevocable Trust for grantor's benefit?

It's difficult to answer your questions without knowing more about what you're trying to accomplish. There could be a tax benefit in that property in the trust would not be included in your estate, so whatever you transfer in now, if less than the estate tax credit (currently $625,000, but scheduled to rise to $1,000,000) would grow free of estate taxes.

However, if you are still the beneficiary of the trust in some way, or have some control over it, the IRS may take the position that the property hasn't left your estate at all. Thus, if you transfer property to an irrevocable trust, don't expect to get it back. You can still benefit from some types of irrevocable trusts, such as charitable trusts, but you still lose control over the assets.

If instead you're seeking protection from creditors, new laws in Alaska and Delaware allow trusts for this, as well as offshore trusts.

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Answered on 1/26/98, 4:58 pm
WILLIAM BRANDWEIN WILLIAM A. BRANDWEIN, A PROFESSIONAL LAW CORP.

IRREVOCABLE TRUSTS

I HAVE HAD A CLIENT GIVE ME A SET OF DOCUMENTS SIMILAR TO THAT WHICH YOU SET OUT. I DON'T KNOW WHERE YOUR'S COME FROM BUT IT WAS MY ADVICE THAT THE TRUST AS SET UP WOULD CAUSE THE ENTIRE TRUST TO BE CLASSIFIED AS AN ABUSIVE TRUST AND MIGHT SUBJECT THE PARTICIPANT'S TO FRAUD CHALLENGE. I DON'T MEAN TO SAY THAT YOUR SITUATION IS THE SAME AS I COULDN'T TELL WITHOUT SEEING THE DOCUMENTS, BUT IT SOUNDS FAMILIAR. THESE TYPE OF TRUSTS SHOULD NOT BE DESIGNED TO SAVE INCOME TAXES AS THEY WILL PROBABLY FAIL. ASSET PROTECTION-MAYBE DEPENDING ON THE CIRCUMSTANCES.

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Answered on 1/27/98, 7:22 pm


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