The IRS is warning taxpayers to watch out for promoters aggressively pushing trusts for tax avoidance. These scam artists might say that you can transfer assets into a trust and thus reduce your taxable income.
In fact, when a trust is created, income tax won’t be avoided. Any income generated by the trust will be taxable to the creator (“grantor”), the beneficiaries, or the trust itself, depending on the circumstances. What’s more, if income is taxable to the trust, it will be taxed more heavily than it would on a personal tax return, because of the tax rates on trust income.
As for personal expenses, they won’t become deductible just because they’re made by a trust. Only legitimate business or investment expenses may be deducted.
It is true that transfers to irrevocable trusts may place assets out of your taxable estate, if those assets are totally beyond your control. However, complex (and potentially costly) gift taxes must be considered. With federal estate tax laws being eased, you might not need to be so concerned about estate tax that you need to move assets into an irrevocable trust.
