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What are the tax laws and tax implications on "gifting to" or "funding" a trust with new money?

Dallas, TX |

Let me use this scenario: You are highly blessed but all of a sudden you have a large sum of money in your checking account. Living on a frazzled shoestring before receiving the funds, you do not have a trust or an LLC. What, if any, are the tax implications of moving personal funds into a legal entity? Do you pay pay a gifting tax for moving these funds out of your name into a trust (LLC, etc.).

Thank you so kindly for your direction an clarification.

Attorney Answers 4

Posted

Funding a trust and gifting money or other assets are not the same. A gift can have certain tax implications depending on the form and amount of the gift.

When you establish a revocable trust, you can then "fund" the trust by putting all assets under the trust (accounts, real property, personal property, so on).

It is unclear if you are asking about estate planning or specific asset protection issues. If you want to establish a trust and fund it, that does not create any tax liability (if done correctly). If you are looking to protect the assets from attack by possible creditors, that is separate and is done through revocable, spendthrift, and other trusts and mechanisms. As a general matter there are no particular tax implications in that, but plenty of legal ones.

In short, you should speak with a local attorney with expertise in estate and asset planning. It is extremely complex area of law and something that requires an expert.

This answer is for informational purposes only and is not legal advice regarding your question and does not establish an attorney-client relationship.

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Posted

Thank you Mr. Murillo for your response. I have a blog and will be posting this info there. www.cindytbc.wordpress.com Again, thank you.

Robert John Murillo

Robert John Murillo

Posted

Good luck. You should retain a local estate and asset protection attorney. Also, I meant to write "irrevocable" not revocable trusts. Revocable trusts do not provide asset protection, generally.

Asker

Posted

This conversation has been posted at www.cindytbc.wordpress.com Again, thank you. If you look the site over, you may be able to discern what prompted my question.

Posted

If the trust is a revocable trust, then there are no gift tax implications on transferring assets to it.

If you fund an irrevocable trust there are gift tax implications. In the latter situation, gifts to trusts are usually future interest gifts to the recipients. As a result they do not qualify for the annual donee exclusion of $13,000 unless you have certain provisions contained in the trust.

If you need more insight into this topic please read Gift Giving: Tax Advantages at the following link http://www.sjfpc.com/gift_taxes_planning.html

You should really speak to an estates attorney about estate planning. For more on these and other issues, see Estate Planning Mistakes: 5 Not So Easy Pieces at http://www.sjfpc.com/estate_planning_drafting_wills_trusts.html

Hope this helps.

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Mr. Fromm is licensed to practice law throughout the state of PA with offices in Philadelphia and Montgomery Counties. He is authorized to handle IRS matters throughout the United States. His phone number is 215-735-2336 or his email address is sjfpc@comcast.net , his website for more tax, estate and business articles is www.sjfpc.com. and his blog is

LEGAL DISCLAIMER Mr. Fromm is licensed to practice law throughout the state of PA with offices in Philadelphia and Montgomery Counties. He is authorized to handle IRS matters throughout the United States. His phone number is 215-735-2336 or his email address is sjfpc@comcast.net , his website is www.sjfpc.com. and his blog is <http://frommtaxes.wordpress.com/> Mr. Fromm is ethically required to state that the response herein is not legal advice and does not create an attorney/ client relationship. Also, there are no recognized legal specialties under Pennsylvania law. Any references to a trust, estate or tax lawyer refer only to the fact that Mr. Fromm limits his practice to these areas of the law. These responses are only in the form of legal education and are intended to only provide general information about the matter within the question. Oftentimes the question does not include significant and important facts and timelines that if known could significantly change the reply or make such reply unsuitable. Mr. Fromm strongly advises the questioner to confer with an attorney in their state in order to ensure proper advice is received. By using this site you understand and agree that there is no attorney client relationship or confidentiality between you and the attorney responding. This site should not be used as a substitute for competent legal advice from a licensed attorney that practices in the subject area in your jurisdiction, who is familiar with your specific facts and all of the circumstances and with whom you have an attorney client relationship. The law changes frequently and varies from jurisdiction to jurisdiction. The information and materials provided are general in nature, and may not apply to a specific factual or legal circumstance described in the question or omitted from the question. Circular 230 Disclaimer - Any information in this comment may not be used to eliminate or reduce penalties by the IRS or any other governmental agency.

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At this time, the funds are not available to set up a legal entity. The funds will be available AFTER the funds are received. Hopefully this will bring forth more clarity for the situation described.

Posted

Are you worried about protecting the assets? If so you can set up a spendthrift trust BEFORE you get into liability trouble.

You really need to sit down with a tax attorney/estates attorney are articulate what you are trying to accomplish.

I have not seen any objectives / desires in your question. For example money placed in a grantor trust is treated as if you didn't transfer it at all from a tax standpoint.

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Curt Harrington
(562) 594-9784
curt@patentax.com

Curt Harrington Patent & Tax Law Attorney Certified Tax Specialist by the California Board of Legal Specialization PATENTAX.COM This communication is general information and not legal advice, and does not create an attorney-client relationship. This communication should not be relied upon as any type of legal advice. Please note that no attorney-client relationship exists between the sender and the recipient of this message in the absence of either (1) a signed fee contract and (2) remission of an agreed-upon retainer. Absent such an agreement and retainer, I am not engaged by you as an attorney, nor is any other member of my law firm.

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At this time, the funds are not available to set up a legal entity. The funds will be available AFTER the funds are received. Hopefully this will bring forth more clarity for the situation described.

Posted

You are really talking about two different situations.

If you contribute assets to a business entity - an LLC, a corporation, or a limited partnership - you receive a membership interest, stock, or partnership interest in return. So there is no gift tax implications per se. The entity owns the assets, and you own the interest in the entity.

A trust (in Texas) is not an entity, but a special type of legal relationship. If you transfer money or other assets to a trustee and the terms of the trust are not revocable or amendable by you, then generally speaking, you will have made a gift for the benefit of the beneficiaries which may be subject to gift tax. That said, in 2012, you can give away up to $5,120,000 in assets during your lifetime without any gift tax liability (although you may have to file a gift tax return).

If you are already expecting to receive a large sum of money, at this point, it is unlikely that it will matter - for tax purposes - whether you receive the money individually or through a business entity or a trust at this point. Nonetheless, you should sit down with an attorney to discuss the circumstances and what specifically your are trying to achieve.

NOTICE: The foregoing is provided for general informational purposes only and is not intended to create, and should not be construed as creating, an attorney-client relationship. Legal advice that you rely upon in making important decisions should only be obtained from direct communications with a lawyer licensed in your jurisdiction after there has been a full disclosure of all of the relevant facts. That said, you should never provide information that you intend to be confidential or privileged on a forum such as this, and you should never rely on information provided here as a substitute for such legal advice. Also, please note that any U.S. tax information provided above is not intended to be used, and may not be used, for the purpose of avoiding penalties imposed under the U.S. Internal Revenue Code or for promoting, marketing, or recommending any portion of this communication to any party.

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