Corporate Income Taxes - Tax-Planning Client Letter on Irrevocable Trusts, Gift Tax, and Estate Tax - Research Paper Example

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As such, it is significant for my client to understand the meaning and implication of this type of trust. According to Gupta (2009), irrevocable trust cannot be revoked, terminated or modified unless the…
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Corporate Income Taxes - Tax-Planning Client Letter on Irrevocable Trusts, Gift Tax, and Estate Tax
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Letter: Irrevocable Trust Irrevocable Trust My client intends to grant his two grandsons an irrevocable trust. As such, it is significant for my client to understand the meaning and implication of this type of trust. According to Gupta (2009), irrevocable trust cannot be revoked, terminated or modified unless the beneficiary approves of it. This implies that my client (the grantor) seizes to have any control over the property as he has effectively removed his rights of ownership to the trust and the assets.
My client is likely to have crucial benefits when he establishes the irrevocable trust. In this case, he will have estate and tax considerations as the part of the asset under irrevocable trust will not be reflected in his tax obligations. By removing a part of the estate from all incidents of ownership, my client will effectively remove them from his taxable estate, Hosseini (2013). Furthermore, the client will be relieved from tax obligations emanating from that part of asset under irrevocable trust. Though tax law differs among jurisdiction, the granter will not be exempted from the aforementioned tax relief if he remains the trustee of the trust.
The fact surrounding this case is that the irrevocable trust has both drawbacks and benefits in equal measures. On the part of the disadvantages, the trust cannot be revoked, as the name suggest. In addition, it cannot be amended to accommodate other inclusions or exclusions. On the other hand, the granter is exempted from various tax burdens including estate and income taxes. These facts are significant for my client so as to make a sound decision.
The issue in this legal matter is that the granter is interested in establishing an irrevocable trust in favor of his two grandchildren. In this case, his interest is two have the beneficially receive the income from the estate to be distributed to the two children until they are 20 years of age. In this case, they are interested in knowing the benefits and drawbacks of taking this particular choice or rather to learn of other available channels that can be used to address their interests.
Rules and regulations governing estate tax in America are enshrined in the estate and gift act of 2001 together with a multiple amendment to the same. The Act provides that estates are subjected to taxation that is gazetted in the government press in a given period of time. In this case, the tax is payable by the person to which the estate in registered or the trustee, Frischmann (2008). This implies that my client, as the registered owner, is supposed to remit both the income tax and estate tax to the government in accordance with the Act.
Other implication of establishing the irrevocable trust would be the loss of finance by the granter. According to Gupta (2009), the granter will lose his or her finance as the proceedings of the estate are delivered to the beneficiaries. Still, the move can be contested in a court especially by other beneficiaries of the same estate. Further still, the process cannot proceed if there is a pending matter in the legal system concerning the estate, pg.335.
This matter would come to rest depending on the interests of the client. In this case, if he is ready to lose the estate income to the beneficially, there is no injunctions regarding the estate and that his best interest is to have the beneficially pay the estate tax, then, it is advisable for him to establish the irrevocable trust.
Frischmann, B. 2008, "REVITALIZING ESSENTIAL OF TRUST", Trust Law Journal, vol. 75, no. 1, pp. 1-65.
Gupta, J. 2009, "Issues surrounding irrevocable trust", Trust Efficiency, vol. 2, no. 4, pp. 339-352.
Hosseini, S.M. A. 2013, “Corporate Income Taxes", Systemic Practice and Action regarding trust, vol. 26, no. 2, pp. 131-152. Read More
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