Everyone wants to pay fewer taxes. Finding legitimate ways to do so is difficult but the tax code is complicated. Understanding it often necessitates the advice of expert counsel. If you're looking to save money on taxes, there are some trusts recognized by the Internal Revenue Service you might want to consider.
Tax liability differs according to whether the liability is attached in accordance with income tax purposes or with gift and estate tax purposes. One kind of trust that seeks to maximize the tax savings benefit of the difference between these purposes is the Intentionally Defective Grantor Trust.
The IDGT lets parents complete a gift transaction to their daughters and sons while still being the owners of the assets in the gift transaction for income tax purposes. The idea is essentially to have the assets taxed at a lower amount at the time of the gift, rather than at a higher amount when the parents pass on and leave the estate with the assets appreciated in the interim.
A related trust is the Incomplete-Gift Non-Grantor Trust. The ING is a way to have gifts completed for the purpose of income tax. The parents making the gift are the beneficiaries of the ING trust. Because the ING trust is treated as a separate taxpayer, when it is established in a state without a state income tax, the parents using it can save a substantial amount. This kind of trust must be domiciled in a state that allows for it.
There are many other trust options for individuals looking to save on taxes. An experienced attorney can help people put together excellent options.
Source: Forbes, "Might These Little-Known IRS-Recognized Trusts Save You Substantial Taxes?" Todd Ganos, Dec. 26, 2014