Monday, January 14, 2013

Grantor trust may simplify tax preparation

I did speak to a tax adviser this morning about the strategy for 2012 taxes, now that the Alternative Minimum Tax threshold was raised amply (to about $112000).
I now understand that my conversion of mother’s trust to a “Grantor Trust” will mean that there is only one tax return, mine, from the time that the trust became active (early 2012).
Interest payments or dividends that get deposited to “trust” accounts are taxable in the ordinary sense to me as if they had been in my name. 
Fortunately, this does not kick me into Obama’s higher marginal rates.  There is no tax on money moved from the “trust” to “me”, a concept that would seem to invite abuse.
This sort of arrangement is not for everyone.  In fact, retirees who own businesses that generate substantial revenue should consider setting up separate entities (according to state laws and various regulations – you may need an attorney) and not streaming the money to their own returns. 
The tax preparer, already past the maximum age to start Social Security, noted that people in his boat (or mine) really could be in danger of sudden means testing if Congress drops the ball on the debt ceiling and if the Treasury decides it has to stiff Social Security, as I have noted.  On the other hand, early indications suggest that the administration is taking no position on prioritization and would want to pay debts on a “first come, first served” basis.  But that might not hold.  Certainly bond interest comes first.  

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