Facts on Trusts
If you are interested in starting a Grantor Trust, please make certain that this option is appropriate for you and your beneficiaries. This page is to help you learn how to choose a trust and trustee that is right for you.
- A Trust is a legal entity formed under the jurisdiction of the state or country in which it was incorporated. To literally hold or put something "in Trust" legal title to property is conveyed to a trustee, who is then charged with the responsibility of holding or using that property for the benefit of another person, called the beneficiary, who ultimately retains the benefits of ownership, except for bare legal title.
- Legal trusts are used in such matters as estate planning; to facilitate the genuine charitable transfer of assets; and, to hold assets for minors and those unable to handle their financial affairs.
The most important step in finding a trust that is right for you is determining whether or not it and its claims are legitimate. If your state determines that a trust is illegitimate, then any steps taken to protect your assets will have been for naught. To help determine if your trust is legitimate, we have included a great many facts on this page and on the FAQ section of the site on what governments and tax authorities have to say about trusts.
For our US Clients, we have included some important facts about the US Internal Revenue Code:
- All trusts must comply with the tax laws as set forth by the Congress in the Internal Revenue Code, Sections 641-683, please see this information link to the IRS page on abusive trusts.
- Taxpayers are responsible for the payment of their taxes as set forth by certain treaties and contracts.
True & False Claims:
Here are some claims that an abusive trust agent might make that should raise "red flags" when selecting the appropriate trustee.
False Claim - Establishing a trust will reduce or eliminate income taxes or self-employment taxes.
The Truth - The transfer of assets to a trust will give the donor no additional tax benefit. Taxes must be paid on the income or assets held in trust, including the income generated by property held in trust.
False Claim - You can transfer your income into a trust, thus eliminating income taxation on that income.
The Truth - Income remains taxable to the individual who earns it. Lucas v. Earl, 281 U.S. 111 (1930).
The Truth - Under non-grantor trust arrangements, you must give up significant control over income and assets. A trustee is designated to hold legal title to the trust assets, to exercise independent control over the trust, and to manage the trust.
False Claim - Taxpayers may deduct personal expenses paid by the trust on their tax return.
The Truth - Non-deductible personal living expenses cannot be transformed into deductible expenses by virtue of assigning assets and income to a trust.
False Claim - Taxpayers can depreciate their personal residence and furnishings and take them as deductions on their tax return.
The Truth - Depreciation of a taxpayer's personal residence and furnishings is not deductible by virtue of assigning the residence to a trust.
To stop Abusive Trust Promoters, the IRS has recently undertaken a national coordinated strategy to address abusive trust schemes. For more details about the IRS policy regarding abusive trusts, refer to IRS Public Announcement Notice 97-24, which warns taxpayers to avoid abusive trust schemes that advertise bogus tax benefits.
IRS Service Center personnel are being trained to review, to recognize fraud risk factors, and refer suspicious returns to IRS Compliance for an audit or IRS Criminal Investigation for criminal prosecution.
Should a taxpayer choose to participate in an abusive trust scheme, the taxpayer will not be shielded from potential civil and criminal sanctions.
Violations of the Internal Revenue Code may result in civil penalties and/or criminal prosecution.
Civil sanctions can include a fraud penalty up to 75% of the underpayment of tax attributable to the fraud in addition to the taxes owed.
- Criminal convictions may result in fines up to $250,000 and/or up to five years in prison for each offense.
Eurotex Global Savings & Trust SA forms Revocable Grantor Trusts, as defined by the US IRS and by most modern sovereign nations, also considered Non-Discretionary Trusts. Please check with your local tax authority for help in defining your tax implications in regards to Grantor Trusts.