Q: What is a trust?
A: A trust is an entity created and governed under the state law in which it was formed. A trust involves the creation of a fiduciary relationship between a grantor, a trustee, and a beneficiary for a stated purpose. A trust may be created by any of the following methods:
- A declaration by the owner of property that the owner holds the property as trustee;
- A transfer of property by the owner during the owner's lifetime to another person as trustee;
- A transfer of property by the owner, by will or by other instrument taking effect upon the death of the owner, in trust, to another person as trustee or
- An exercise of a power of appointment to another person as trustee or an enforceable promise to create a trust.
Q: What type of trust does Eurotex Global Savings & Trust offer?
A: We currently offer our clients what is called a "revocable grantor trust", as it provides what we feel is the most optimimum blend between asset protection and ease of access. This trust may be formed to protect cash, property, insurance policies, stock, and/or other unique assets.
Q: Who is a grantor of a trust?
A: The grantor (also known as trustor, settlor, or creator) is the creator of the trust relationship and is generally the owner of the assets initially contributed to the trust. The grantor generally establishes in the trust instrument the terms and provisions of the trust relationship between the grantor, the trustee, and the beneficiary. These will usually include the following:
- The rights, duties, and powers of the trustee;
- Distribution provisions;
- Ability of the grantor to amend, modify, revoke, or terminate the trust agreement;
- The designation and selection of a trustee or successor trustees; and
- The designation of the state under which the terms and provisions of the trust agreement are to be governed.
Q: What is a trustee/fiduciary?
A: The trustee obtains legal title to the trust assets and is required to administer the trust on behalf of the beneficiaries according to the express terms and provisions of the trust agreement. A fiduciary is an individual or organization charged with the duty to act for the benefit of another. A trustee is a fiduciary.
Q: What is a beneficiary?
A: The beneficiaries are those entitled to receive benefits from the trust.
Q: What is a grantor trust?
A: "Grantor trust" is a term used to describe any trust over which the grantor or other owner retains the power to control or direct the trust's income or assets. If a grantor retains certain powers over or benefits in a trust, the income of the trust will be taxed to the grantor, rather than to the trust. (Examples, the power to decide who receives income, the power to vote or to direct the vote of the stock held by the trust or to control the investment of the trust funds, the power to revoke the trust, etc.) Our Trusts allow for power over your cash, stock and other assets; additionally, each grantor also has the option to "revoke" the trust, and receive or transfer all assets in trust. All "revocable trusts" are by definition grantor trusts. If a trust is a grantor trust, then the grantor is treated as the owner of the assets, the trust is disregarded as a separate tax entity, and all income is taxed to the grantor.
Q: What are irrevocable/revocable trusts?
A: An irrevocable trust is a trust, which, by its terms, cannot be modified, amended, or revoked. For tax purposes an irrevocable trust can be treated as a simple, complex, or grantor trust, depending on the powers listed in the trust instrument. A revocable trust may be revoked and is considered a grantor trust (IRC § 676). State law and the trust instrument establish whether a trust is revocable or irrevocable. If the trust instrument is silent on revocability, then most states consider the trust revocable.
Trust Taxation Questions
Q: What law controls trust taxation in the US?
A: Taxation of trusts can be found in subchapter J (Estates, Trusts, Beneficiaries, and Decedents - Sections 641 through 692) of the Internal Revenue Code. State law generally governs the legal standing of a trust and is important in some definitions included in the Internal Revenue Code.
Q: What laws control trust taxation in my country?
Q: What laws control trust taxation in my country?
A: Most tax regulators internationally follow similarly with the US, and the tax liability for grantor trusts are considered the responsibility of the grantor. Please check with your local tax authority.
Q: Do trusts have a requirement to file federal income tax returns?
A: Trusts must file a Form 1041, U.S. Income Tax Return for Estates and Trusts, for each taxable year where the trust has $600 in income or the trust has a non-resident alien as a beneficiary. However, if the trust is classified as a grantor trust, it is not required to file a Form 1041, provided that the individual grantor reports all items of income and allowable expenses on his own Form 1040, U.S. Individual Income Tax Return. Thus, the grantor/individual would pay the total tax liability upon the filing of his return for that taxable year.
Q: I have been told that I can assign income to a trust and I will not be taxed on that income. Is this true?
A: No. Income that is earned by one person cannot be assigned to another for federal income tax purposes. You would still be liable for income taxes due on income earned, even though it was directly paid to the trust.
Q: Will I owe Federal Gift Taxes on property contributed to a trust?
A: The creation of a trust, or the contributing of property to a trust may or may not have gift tax implications, which would require the filing of Form 709, Gift Tax Return. For gift tax purposes, a gift is complete to the extent the donor (the person making the gift) has irrevocably parted with dominion and control over all or part of the transferred property, whether directly or indirectly, leaving the donor without the power to change its disposition, whether for the benefit of the donor or for the benefit of others. Where a grantor trust has been established, generally no gift tax would be due on property contributed. In situations where an Inter Vivos irrevocable trust is the recipient of property contributed, a gift tax return would generally be due. Testamentary trusts would be subject to estate and gift tax rules/filing requirements.
Q. The information presented by the promoter sounded legitimate. Now I have concerns regarding this promotion. Who do I contact to report information on the promotion and promoter?
A. Contact the Internal Revenue Service at 1-866-775-7474 or e-mail the Tax Shelter Hotline at email@example.com.
Q. Can I get more information on the Internet?
A. Yes. Additional information is available at the following web sites:
- Canada Revenue Agency
- Australian Taxation Office
- HM Revenue & Customs (UK)
- The Tax Scams/Fraud Alerts site provides information on tax scams and explains how to report suspected tax fraud.
- Find out some of the red flags that might be present in the Abusive Tax Shelters section on IRS.gov.
- The IRS Newsroom's page on Tax Scams/Consumer Alerts describes a number of common tax scams. If any of these apply to your investment, you should consult a tax professional not involved in promoting the investment. Or you may contact IRS to determine how it will treat such a promotion.
- Or find the following publications: