More On Tax Planningfrom The Advisor's Professional Library
- Annuities: Variable Annuities Annuities are hot. The tax rules vary with the circumstances. Advisors must be aware of these intricacies when discussing annuities with clients.
- Health Insurance: Health and Medical Savings Accounts A Health Savings Account is a trust created exclusively for the purpose of paying qualified medical expenses of an account beneficiary. Although they are popular, they are not without their pitfalls and the regulations can be complicated. Learn more about how to avoid federal taxation on the accumulation and distributions of HSA.
This is the fourth in a series of 23 tax tips that AdvisorOne will publish on each business day in March as part of our Tax Planning Special Report (see our Special Report calendar for a more complete list of topics to be covered and experts who will deliver their insights).
Today’s tax tip comes from Martin Shenkman of Shenkman Law, with legal offices in northern New Jersey and New York. Shenkman is the author of 34 books, hundreds of magazine and journal articles, and received his undergraduate education from the Wharton School of the University of Pennsylvania, his MBA from the University of Michigan and his JD from Fordham University.
The Tip: Have the Grantor Pay Taxes on a Grantor Trust’s Income.
Shenkman (left) points out that grantor trusts can be structured so that the grantor, the individual setting up the trust, can be taxed on the trust income. Counterintuitive? Perhaps, but only if you disregard the estate tax benefit to the grantor.
Yes, the current estate tax, or “death tax” as some prefer to call it, is currently on a two-year lifeline before the 2010 Obama compromise tax law sunsets. But right now, paying taxes on the trust’s income, says Shenkman, reduces the value of the grantor’s estate. When the beneficiaries of the estate are due to pay the estate tax—whatever that is at the time—those beneficiaries will face a smaller tax bill.
Shenkman admits that this strategy is commonly taken “in costly and sophisticated trust transactions, it can be done in many others as well.”
See our Tax Planning Special Report calendar for a list of future topics to be covered.