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Score a triple win when a trust fails

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in Small Business Tax,Small Business Tax Deduction Strategies

Sometimes, it makes sense to intentionally do things “the wrong way” in the tax world. This could be one of those times.

Strategy: Set up an intentionally defective trust (IDT). As the name implies, the arrangement is designed to fail the tax rules for “nongrantor trusts.” In the end, however, the IDT is a triple tax winner.

The time may be ripe to set up an IDT because interest rates are currently low.

Basic premise: Typically, you might shift assets to an irrevocable trust that is set up for designated beneficiaries. You aren’t taxed on the earnings if you give up all control over the assets transferred to the trust. Plus, the assets are removed from your taxable estate.

Generally, this is good news if you are in the top 35% federal income tax bracket. But it can be bad news if you’re in a lower tax bracket or the trust earns a substantial amount of income each year. Reason: The income tax brackets for trust...(register to read more)

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