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ATTORNEY-AT-LAW
Tax consequences of irrevocable trusts create confusion
This is tax season and as an estate plan- be some variations, in the typical situation, much higher rate of income tax. insured’s estate if the insured retains any
ning/elder law attorney, I spend a lot of the grantor retains the right to live at the The confusion is the result of the word ownership rights. It is common for highly
time discussing the tax implications of premises and collect all of the income from “irrevocable.” Most accountants and fi- insured clients to transfer their life insur-
irrevocable trusts. Since trusts typically the trust. If the trust assets are stocks, then nancial advisors consider an irrevocable ance policies to an irrevocable insurance
pay a compressed rate of tax, it is benefi- he receives the dividends. If the trust owns trust to be a separate entity. However, the trust and give up all rights of ownership.
cial for clients to pay income bank accounts then he re- Grantor Trust Rules, if they apply, ignore If done properly, the insurance pro-
taxes at their individual rate. ceives interest earned. If the trust as a separate entity and all of ceeds will avoid estate taxes at death. This
The way to accomplish this the trust owns rental prop- the income tax implications are reported income tax consequence of the irrevocable
favorable tax treatment is to erty then he receives net on the settler’s individual income tax insurance trust is often confused with the
create a trust that adheres to income. Upon the grant- return. Furthermore, if the irrevocable Medicaid qualifying trust. While both
the Grantor Trust Rules in or’s death, the property trust owns real property, the grantor will trusts are irrevocable, they are designed
the IRS Code. transfers to his heirs report the sale on his individual return for different purposes and if drafted well,
Most irrevocable trusts The question is who and may apply his or her $250,000 capital they are taxed very differently. If the in-
that protect assets from the pays the income tax on gains exemption. surance trust has cash assets, they will be
cost of long-term care are the trust earnings. If the The Grantor Trust Rules are found in taxed at the compressed tax rate.
structured as grantor trusts trust is structured as a the IRS Code. If properly drafted, the ir- Other irrevocable trusts, such as quali-
and, as a consequence, the grantor trust, the income revocable trust for Medicaid purposes will fied personal resident trusts (QPRTs) and
income earned in the trust is taxed to the client at his satisfy the grantor trust requirements. In intentionally defective grantor trusts
is reported on the grantor’s individual rate. In order to addition to paying income tax at the lower (IDGTs), are used to reduce estate taxes as
tax return and taxed at the achieve this favorable tax individual rate, the assets in the trust will well. The estate tax savings can be signifi-
lower individual tax rate. BY NANCY BURNER, ESQ.
treatment, the trust must receive a step up in basis at the grantor’s cant. However, the savings realized in the
For instance, consider conform to the Grantor death. In other words, the grantor’s heirs estate tax arena must be measured against
an elder law client who cre- Trust Rules. will most likely avoid paying capital gains any potential capital gains tax incurred
ates an irrevocable income- The Grantor Trust tax on inherited property that may have once the beneficiaries receive the assets. If
only trust in which he trans- Rules are provisions in the appreciated during the grantor’s life. you have an irrevocable trust, make sure
fers his home and $200,000 in stocks and IRS tax code that allow the trust entity to However, not all irrevocable trusts are you discuss the tax implications before
bonds. The client may also transfer other be disregarded for income tax or estate grantor trusts. There are some instances transferring assets. Not all irrevocable
assets, like bank accounts, other real estate tax purposes. In many instances, this is where an irrevocable trust is created for trusts are the same.
and annuities to the trust as part of his as- a good thing. Then tax season is upon us the specific purpose of transferring the
set protection plan. For Medicaid eligibility and I receive calls from the client, his fi- assets out of the grantor’s estate. One ex- Nancy Burner, Esq. has practiced elder
purposes, the trust protects the assets and nancial advisor or his accountant advising ample of a nongrantor irrevocable trust is law and estate planning for 15 years. The
the transfer to the trust does not make him that a separate tax return must be filed for the insurance trust. Many clients do not opinions of columnists are their own. They
ineligible after five years. While there may the new trust and that the trust will pay a know that life insurance is taxable in the do not speak for the paper.

BUSINESS
Hayes
physical therapy
the Alcohol Coalition of Eastern Suffolk
(ACES), which is sponsored by the East-
ern Suffolk BOCES Student Assistance
Program. The ACES project is funded by
a grant from the United States Depart-
ment of Education.
As part of the program, teams of vol-
Anne M. McLaughlin unteers will reach out to vendors in the
Rocky Point and Shoreham-Wading River
PT, MS, CKTP area and ask them to agree not to sell alco-
hol and tobacco products to minors. These
Hayes Physical Therapy, opened in 2004, offers treatment programs that teams are made up of individuals from
are custom designed to fit the individual needs of our patients. In our nonprofit organizations, local government
From left, Deputy Superintendent of
state-of-the-art facility, all phases of treatment are designed and supervised leaders, law enforcement members, parents,
Eastern Suffolk BOCES Dr. Julie Lutz; Suffolk
by a NYS licensed Physical Therapist. Anne M. McLaughlin, the owner students, faith-based organizations and lo-
County Police 7th Precinct Officer Daley;
and director of Hayes Physical Therapy has been with the practice since its cal businesses. The teams will also be taking
Suffolk County Legislator Sarah Anker;
notice of the location of alcohol and tobac-
opening. She has over 25 years experience in the field of Physical Therapy Kevin McCarrick, owner of McCarrick’s Dairy;
co advertisements in relation to schools in
with an emphasis on out-patient orthopedic rehabilitation, helping restore Supervisor Mark Lesko; Councilwoman Jane
playgrounds. Local businesses will be en-
patients’ active, healthy lifestyles. Anne recently achieved her certification in Bonner; Principal of Shoreham-Wading River
couraged to display posters that show they
High School Dan Holtzman; Assistant Principal
Kineso-taping®, which is a treatment favored by many professional athletes, do not support the sale of these products to
of Rocky Point High School Susann Crossan;
proving especially helpful in the recovery of orthopedic and sports injuries. underage customers.
and ACES Project Director Lucille Buergers.
The practice offers morning, afternoon and evening appointments. New For more information about the Not
on Your Life program, contact Lucille
patients can usually be seen within 24 hours of their first phone call to Hayes
PT. Services offered include Lymphedema Management, Neurological Rehab,
Not on Your Life Buergers, ACES Project Director, at the
Eastern BOCES Student Assistance Of-
Senior Fit Programs, Sports Therapy, Low Back Rehab and Low Level Laser
Therapy. An independent gym program is available for continuing progress
program fice at 289-0078.
On March 3, Supervisor Mark Lesko
after therapy is completed.
Anne has often had patients comment that they are getting maximum
and Councilwoman Jane Bonner were on
hand to help kick off the Not on Your Life Decorating tips
value for each therapy session and achieving the most positive outcome program, which asks local businesses to Natalie Weinstein will offer decorat-
possible. This is even more appreciated in this climate of increasingly limited sign a pledge not to sell alcohol and to- ing tips on Saturday, March 24 from 11
insurance coverage and rising co-pays. bacco products to minors. The first local am to 2 pm at Four Seasons Sunrooms,
©111938
business to agree to the pledge was Mc- 5005 Veterans Memorial Highway, Hol-

(631) 246–6072 60 RTE. 25A, SUITE 2 t
EAST SETAUKET Carrick’s Dairy in Rocky Point. Not on brook. To RSVP, email nataliesclub@
www.hayespt.com Your Life is part of a larger effort called aol.com.