Defective Vs Complete

Without entering into details for each vehicle: Complete = the trust pays income taxes Defective = the trust does not pay income taxes, income taxes are paid by the grantor is this correct?

partially correct For complete, the trust pays income taxes Defective can be from income tax standpoint or estate tax standpoint. If its defective from income tax standpoint, then the grantor pays taxes. If its defective from estate tax standpoint, then the trust pays income taxes, however, estate tax will be have to be paid by beneficiaries.

Can it be totally defective?

Theoritically it could be (I suppose), but then it will be totally useless. Think of the grantor personal ivestment account, you can define it as “totally” defective trust. From this standpoint, the grantor pays his own income taxes and then assets become part of his estate upon his death and the beneficiaries pay the estate tax; this would be equivalent to “totally” defective trust (if such structure even exists).

so, in order to assess if it is tax efficient… we look at it from the perspective of the trust itself, right? I mean, the trust is another “person” with some value inside. If somebody (grantor) pays its income tax, great “for the trust” as it does not pay anything. Also, if also somebody (beneficiaries) pays estate tax when the grantor dies, great “for the trust” as it does not pay anything, too. Does this make sense or is it too simplistic? thx

that sounds fine however, in case of estate taxes the trust itself will never pay them, its either paid by the grantor in terms of gift tax when the trust is created or by beneficiaries if it was defective from estate tax standpoint

volkovv Wrote: ------------------------------------------------------- > partially correct > > For complete, the trust pays income taxes > > Defective can be from income tax standpoint or > estate tax standpoint. If its defective from > income tax standpoint, then the grantor pays > taxes. If its defective from estate tax > standpoint, then the trust pays income taxes, > however, estate tax will be have to be paid by > beneficiaries. Thanks I needed this