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Iiot Tax Consequences

Irrevocable Interest Only Trust

This type of trust is also referred to as a grantor’s trust. It allows you to place her assets within a trust, designate beneficiaries, protect the assets from creditors, and still live off of the income these assets provide. In many ways, these trusts provide the best of both worlds.

You are able to qualify for Medicaid, because the assets are exempt from the Medicaid estate. However, unlike gifting or deeding you do not lose the benefit of the income of the assets, nor do you have to depend upon the beneficiaries to do the right thing. After gifting an asset you lose all control. After placing an asset in the cost, you do not lose control. You may add change and modify beneficiaries at any time for any reason.

Capital Gains on principal residence

Internal revenue allows the exclusion of James when disposing of your home when you occupied the residence for two of the preceding five years before the sale. This game is limited to $250,000 or $500,000 for married couples.

So you, one is considered used to own the home as their primary residence if their spouse is the home as the primary residence. This ownership test often requires you to have directly over rather than through an entity such as an LLC.

Interest mortgage deduction:
Internal Revenue Code generally allows the detection of two types of debt attached to your home. These are acquisition and home equity and debt.

Medicaid transfer

Essential to comprehending transfer rules for trusts and medic states is knowing when the transfer is considered to Medicaid should not confuse a gift tax. Should there be a transferto a Medicaid asset protection trust under certain conditions then there is not considered to have been a transfer. Example, with a revocable trust, the assets are not exempt and are still considered part of the Medicaid estate. Divorce transfers into a revocable trust do not benefit you for Medicaid purposes.

If you choose a Medicaid asset protection trust, then the transfer occurs on the day the trust was established or the trust was funded. However if the one establishing the trust is still able to benefit from the assets used to fund it is not deemed to be a transfer. Should you not be able to benefit from the assets in the trust that the transfer is considered to have taken place.

Step up in basis
An LPOA is considered an incomplete gift and thus there is no gift tax. Further, the IRS steps the basis up upon the death of the grantor since the grantor alone maintained the right to the income and thus the trust is included in the estate for tax purposes.

Concluding thoughts:
The IIOT should almost always be structured as a grantor trust to prevent negative tax consequences. Finally, a retained LPOA will not result in any gift taxes when the establishment occurs as the gift has not been properly completed. You may find more information at this link.