Question

Sully contributed $750,000 to an irrevocable trust. He did not retain any right to the trust’s assets. The income beneficiary was Sully's sister, Kate, and the remainder beneficiary was a University. When Sully died four years later, the value of the trust was $1,500,000. How much will be included in Sully's gross estate?

Answer 1

An Irrevocable trust can be created by transfer property or assets to a trust for accumulation purpose before the grantor is died. The main difference between revocable and irrevocable trust is that the grantor of property has no control or ownership right on the assets transfer to the trust. Hence the tax on income of irrevocable trust is charged either in the hands of beneficiary or the trust itself. Grantor is not liable to pay the tax on the cash or any other income generated by the irrevocable trust.

In the given case Sully is the grantor and as mentioned she has no right on the trust's assets. Hence income generated by the trust is not taxable in her hand. Beneficiary of the trust is Sully's sister and the University is liable to pay the tax on the income generated.

There will be no value added in Sully's gross estate as she completely waive off the right on assets and not receiving any income generated from the trust.