Is there anyone here who has ANY idea

[Ecumenist]

how a parent can take money out of a trust and give it to a child who'll be sole heir to help with the building of a house? The amount is at least 50K, although the parent wants to give up to 300K. How can this be done without incurring the wrath of the IRS? The Parent, my uncle, has come up with "lending " this amount to my cousin with a repayment due in 50 years or some FAR OFF period of time. Any ideas how to accomplish this? This is a general trust, By the way...

[BlueIris]

1. I am neither a lawyer nor CPA, but...that doesn't sound wise.

'Cause the wrath of the IRS is not to be tempted. Seriously. Well, I mean, I guess human beings can still fuck with whatever agency they want to fuck with if they're willing to deal with the consequences, but, but...there are consequences, often large ones, for fucking with the IRS. I hope that the people who chime in next will be those who have suffered with said consequences and want to caution you and yours against this course of action.

[Coyote_Bandit]

2. I have worked in the trust business

The trust documents will state specifically how the assets in the trust may or may not be used. It will state who can benefit, who can receive money, how the assets are to be distributed, and who makes the decisions regarding the use of the funds. You risk all sorts of problems if you violate the terms of the trust. Because most trusts have important tax planning aspects IRS problems should be a major concern. But they are not the only concern. Some trusts are revocable. There are also restrictions on the total value that can be gifted to anyone during any single year without tax consequences. Run afoul of the gifting restrictions and the entire sum that is transferred becomes subject to the gift tax. The IRS does not look favorably on tax avoidance schemes. Below market interest rates or unreasonably long or delayed payback periods are indications of tax avoidance schemes. Assuming the trust documents permit the use of the funds in this manner then it may well be possible for the child to receive the money legally without any tax consequences. Get some legal advice.

[Coyote_Bandit]

3. Let me add

The gift tax and estate tax laws are chaging every year - as is the amount that may legally be gifted without tax consequences. Those changes will continue until 2009 or 2010 unless the changes in the estate tax laws are made permanent by Congress. ***This is an area of law that currently is changing from year to year.***

You need legal advice regarding (1) interpretation of the document that governs the terms of the trust and (2) current tax law. The best bet would be an attorney/CPA who primarily works in estate planning. This is a highly technical area of the law. A CPA may be able to advise regarding the tax issues but, frankly, they lack the training and background necessary for interpretation of the governing trust document. Such interpretations can turn on the use of a single word. It is not sufficient to look at the intent of the document. Technicalities matter.

For what it is worth, I have a law degree and am licensed to practice in two states. I have also worked as an investment portfolio manager responsible for handling a wide variety of trust and investment accounts. That employment background would include both a large multi-national private bank center and a small trust company.

[Ecumenist]

4. Is there anyone here who has ANY idea

how a parent can take money out of a trust and give it to a child who'll be sole heir to help with the building of a house? The amount is at least 50K, although the parent wants to give up to 300K. How can this be done without incurring the wrath of the IRS? The Parent, my uncle, has come up with "lending " this amount to my cousin with a repayment due in 50 years or some FAR OFF period of time. Any ideas how to accomplish this?

[Ecumenist]

5. Ignore, double post....I have no

idea how I posted this query twice.:crazy: :silly:

[tanyev]

6. You can alert on yourself and ask the mod to delete the extra thread.

[BlueIris]

7. Again I post: I wouldn't even try to do this if I were your relatives.

You don't want the IRS after you in this day and age.

Intentionally trying to skirt the tax laws is never a good plan in my opinion, although if you're doing it on principle for arguably valid reasons (like, say, you live in Ohio, which even a congressional committee concluded did not produce valid election results in '04 and you're therefore being subject to taxation without representation) and prepared to deal with the consequences, well, I try not to judge adults who do that too harshly. I wouldn't personally, but I have the luxury of living in a state--possibly the only one--which has veritably fraud-free elections. Also, I personally consider any attempt to defraud anyone or anything, yes, even a government agency, to be really sleazy and you know, wrong. Exploiting a loophole is one thing, (though still not a good idea and not exactly ethically wonderful, if you ask me) but it sounds like they want to go a lot further than that.

But setting aside my own moral guidelines here for a second: seriously, tell them not to do this. Forget morals, let's just be pragmatic. Trying to cheat, or even obviously mislead the I-freaking-R-S (especially its beyond-vicious post-W. incarnation) is so not even worth the attempt. They'll catch you, they'll fry you, and then you will suffer. Even in the highly unlikely event you get to temporarily benefit from having a little extra money...they get it all back and then some. For a really, really long time. I hope the next couple of posts come from people who have either tried something similar and gotten busted and regret it, or know someone who has. For the record, I haven't attempted to screw the IRS myself, but I've seen what happens to people who try it and especially if you are middle class, a Democrat, a woman, (read: people the IRS loves to punish) or someone who works in entertainment--it's not pretty.

[SheilaT]

8. Talk to an accountant or attorney

who handles large estates. With a trust this large, the uncle should have already serious trust work in place as it is.

Anyone can gift $11,000 per year to anyone at all without incurring the wrath of the IRA, or a taxable incident. So the uncle can gift $11,000 this year to the child, and another $11,000 to that child's spouse. Uncle's wife, if he has one can also gift the same amount to each. That's $44,000 right off the bat.
And another $44,000 on January 1, 2007. Large sums of money can be given away rather quickly, and it's a common form of estate planning. I'm personally familiar with a family where the very well-off parents gave such gifts to all five of their children and all ten grandchildren for many years. They also established 529 educational accounts for all of the grandchildren. That money is intended to be used for education, and the increase passes untaxed if it's used for valid educational purposes. Otherwise the increase, and only the increase is taxed -- I think at the recipient's ordinary income rates, but I'm not sure about that. It can also be earmarked for someone else down the road, and under current laws can be a very effective way to pass large sums of money down the line.

He can probably set up the trust so that the child is the sole beneficiary of it, and when uncle dies, the first $2million or so - depending on exactly when he dies and the tax laws in place at that sad time -- will pass untaxed.

I cannot stress enough that anyone with serious sums of money as you've indicated, should absolutely have trust work in place and a good will. And the uncle needs to consult a professional before anything is done.

[Coyote_Bandit]

9. Again.....

My post from the duplicate thread:

The trust documents will state specifically how the assets in the trust may or may not be used. It will state who can benefit, who can receive money, how the assets are to be distributed, and who makes the decisions regarding the use of the funds. You risk all sorts of problems if you violate the terms of the trust. Because most trusts have important tax planning aspects IRS problems should be a major concern. But they are not the only concern. Some trusts are revocable. There are also restrictions on the total value that can be gifted to anyone during any single year without tax consequences. Run afoul of the gifting restrictions and the entire sum that is transferred becomes subject to the gift tax. Yes, the gift tax rates are significantly different from income tax rates. The IRS does not look favorably on tax avoidance schemes. Below market interest rates or unreasonably long or delayed payback periods are typically considered indications of tax avoidance schemes. Assuming the trust documents permit the use of the funds in this manner then it may well be possible for the child to receive the money legally without any tax consequences. Get some legal advice.

Let me add:

The gift tax and estate tax laws are chaging every year - as is the amount that may legally be gifted without tax consequences. Those changes will continue until 2009 or 2010 unless the changes in the estate tax laws are made permanent by Congress. ***This is an area of law that currently is changing from year to year.***

You need legal advice regarding (1) interpretation of the document that governs the terms of the trust and (2) current tax law. The best bet would be an attorney/CPA who primarily works in estate planning. This is a highly technical area of the law. A CPA may be able to advise regarding the tax issues but, frankly, they lack the training and background necessary for interpretation of the governing trust document. Such interpretations can turn on the use of a single word. It is not sufficient to look at the intent of the document. Technicalities matter.

For what it is worth, I have a law degree and am licensed to practice in two states. I have also worked as an investment portfolio manager responsible for handling a wide variety of trust and investment accounts. That employment background would include both a large multi-national private bank center and a small trust company.

[Cleita]

10. This website might have some answers for you.

http://www.findlaw.com/

Try the section on estate planning. I think there is a way to set up a trust that keeps taxes from being high.