While trusts are generally used by the richest Americans, non-grantor trusts for property tax deductions may make the most sense for the merely well-off who have property taxes totaling as much as $100,000, tax experts say.
Setting up dozens of non-grantor trusts for those with six-figure plus property taxes can be impractical and burdensome. Plus, those whose taxes are under six figures feel the new cap most acutely.
Like the other options, the IRS could issue guidance that would prevent taxpayers from using the trusts to get around the SALT cap. An existing provision says that multiple non-grantor trusts with identical beneficiaries and identical grantors -- and whose primary purpose is to avoid taxes -- can potentially be considered a single entity, with just one $10,000 SALT deduction. But the measure has never been bolstered by regulations, leaving it vague.
Tax advisers also caution that taxpayers have to take into account the costs -- which could be around $20,000 -- associated with setting up and administering such trusts.
Ultimately, the strategy makes the most sense as part of estate planning, as opposed to a standalone tax move since the current property owner can’t end up as the sole beneficiary of the trust, according to Geoff Weinstein, special counsel at law firm Cole Schotz.
“It wouldn’t be the sort of transaction you would be doing if estate planning weren’t part of the analysis,” Weinstein said.
This article was provided by Bloomberg News.