Is an IDIOT Trust Ever a Smart Choice?
May 1, 2009
Gina M. Barry, Esq.
When it comes to protecting assets from nursing home costs, many believe that the solution is to place those assets in a trust. In some circumstances, establishing the type of trust required to obtain asset protection may carry great risk. Nonetheless, in the right circumstances, a smart choice could be the IDIOT Trust.
An IDIOT Trust is an Intentionally Defective Income Only Trust. As the name of this trust suggests, this trust will provide you only with income. A home is the most common asset placed in such a trust. When your home is placed in the trust, income may be received in the form of rents paid or there may be no income generated at all. When other investments are placed in the trust, those accounts will generate interest income. All income is paid to you as the person who established the trust.
The intentional defect in this trust is that the trust will be ignored for income tax purposes. The income generated from the trust assets will be taxed on your personal income tax return, just as it was before you placed the asset into the trust. In addition, upon a sale of a home within the trust, you may be able to take advantage of beneficial capital gains tax exclusions.
Any assets placed within this trust will pass to your beneficiaries upon your death without probate. Further, the assets may continue to be held in ongoing trust for your beneficiaries if so desire.
An IDIOT Trust is an irrevocable trust that...
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by: Gina M. Barry
Prime
May 2009
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