“Ask if the trust assets will be included in your taxable estate, ask how the trust and its distributions will be taxed, ask how much access to and control of the trust assets you will have,” Sheehan said. “Ask if this particular planning technique has been blessed by the IRS.”
Flexibility is key as trusts must sometimes last decades, advisors say. Said Handler, “These trusts could hold millions or hundreds of millions of dollars for decades or generations. Things will change.”
And pay attention to taxation. “Trusts can either be grantor trusts, in which case the grantor and not the trust is responsible for paying tax on the trust’s income, or non-grantor trusts in which the trust—or beneficiaries, to the extent they receive distributions—are responsible for paying tax on the trust’s income,” Goldstein said.
“If a promotor asks a taxpayer to sign a confidentiality agreement with respect to their trust tax strategy, that’s a red flag,” said Pamela Dennett, partner at the Eisner Advisory Group in Dallas. “Respect the trust document and follow through with all the legal requirements to properly fund [the trust], account for it and manage it.”