Trusts  Why establish a trust? Avoid probate Manage assets if incapacitated Manage assets for children Protection from creditors; charming-exs Not to reduce income taxes  Marginal tax rate 35% for income over $10,700 in 2009 MFJ income > $349,700 taxed at 35% in 2009 Aggregate trusts with same grantors and beneficiaries

Trusts  Grantor trusts Retain control over trust  Either income or assets or both Consequently, income is taxed to grantor  Trust is ignored IDIT  Irrevocable, so normally would remove assets from estate  Also, income taxed to trust  But retain power so income taxed to grantor

Trusts  Living trust: transfer farm to living trust  Removes assets from probate estate  But ignored for income tax purposes

Trusts  Income taxed to Beneficiaries if distributed  Income retains character  Simple trusts: must distribute all income Trust if retained  Complex trusts: can accumulate income, make charitable contributions and distribute principal

Trusts  Deduction for distributions Limited to DNI  Basically trust income including capital gains States adopting prudent investor standards considering total return Are capital gains allocated to corpus or distributed?  Can make distributions from complex trust up to 65 days after end of year

Estates Probate estate  Doesn’t include assets passing outside estate Retirement plans; life insurance; jros assets Taxed like a complex trust  Not required to use a calendar year IRD  Retirement plan distributions, for example  Pay income tax and estate tax on assets Gift to charity instead