There are many types of trusts used to maximize a variety of benefits or accomplish goals relating to any number of parties to a trust. The Total Return Unitrust (TRU) is intended to balance the interests of a current trust beneficiary and remainder beneficiaries, while allowing the trustee to maximize the amount of trust income paid out to the current beneficiary.
Many state TRU statutes allow conversion of an existing trust into a TRU. Arizona statutes provide such an option under certain circumstances. In addition, a TRU must be consistent with applicable federal tax laws and regulations. Federal law requires certain types of trusts to pay out all income to a specific beneficiary. As noted, TRUs are typically used to maximize payments to an income beneficiary while preserving reasonable growth for remainder beneficiaries. However, in some circumstances, it may be desirable to use a TRU to minimize income payments. To this end, under certain conditions, the IRS will allow a trustee to convert a trust into a TRU without adverse gift, estate, income, or generation-skipping transfer tax consequences. This strategy can minimize a current beneficiary’s income where there are estate tax concerns, all while preserving more of the trust assets for remainder beneficiaries.
At Morris Hall, we are happy to review the provisions of your current trust to determine if it accomplishes your estate planning goals.
Contributed by MH Phoenix Estate Planning Attorney Andrea Claus.
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This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation.