Tricky Estate Planning Question

[ca dad123]

What is the name of your state (only U.S. law)? CA

I'm hoping someone has an idea how to solve my problem. I'm married and have an adult special-needs child (by my first wife). I own mineral interests which pay royalties. My goal is to provide for both my wife, who is substantially younger than I am, and my child. My original thought was leave the mineral interests in a trust, which would pass its income through to my wife, who would provide for my child either directly or through a special-needs trust. The trust would have two trustees, one of whom would represent my child's interests, thereby ensuring that my child would be protected. Leaving my child a portion of the mineral interests is a poor option since they get SSI and other benefits that would be eliminated.

According to my attorney, if the trust owns the mineral interests, the income will be taxed to the trust (at a ridiculous rate) and then taxed again on distribution. Leaving the mineral interests to my wife would leave my child with no protection. My attorney has no solution for this conundrum.

I'm hoping someone can come up with some way to eliminate the double taxation while protecting my child.

 

[LdiJ]

What is the name of your state (only U.S. law)? CA

I'm hoping someone has an idea how to solve my problem. I'm married and have an adult special-needs child (by my first wife). I own mineral interests which pay royalties. My goal is to provide for both my wife, who is substantially younger than I am, and my child. My original thought was leave the mineral interests in a trust, which would pass its income through to my wife, who would provide for my child either directly or through a special-needs trust. The trust would have two trustees, one of whom would represent my child's interests, thereby ensuring that my child would be protected. Leaving my child a portion of the mineral interests is a poor option since they get SSI and other benefits that would be eliminated.

According to my attorney, if the trust owns the mineral interests, the income will be taxed to the trust (at a ridiculous rate) and then taxed again on distribution. Leaving the mineral interests to my wife would leave my child with no protection. My attorney has no solution for this conundrum.

I'm hoping someone can come up with some way to eliminate the double taxation while protecting my child.

I don't know where you get the double taxation bit...because its completely incorrect. Trust income is either taxed at the trust level, OR passes through as income to the beneficiary, depending on how the trust is set up. There is no such thing as double taxation when it comes to trusts.

However, you are not going to be able to protect your adult special-needs child without putting their SSI and other benefits at some risk. You need to consult a different attorney than the one you are consulting now. You need an attorney that specializes in estate planning.

 

[davew128]

Your attorney should stop giving tax advice as he clearly doesn't know what he's talking about.