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A Primer On Establishing A Trust And Its Taxation

By Sidney Kess and Edward Mendlowitz
Practical Tax Strategies
June 2021

Trusts are an effective mechanism to provide for transfers of assets, protect assets from eventual or potential creditors, enable assets to be used in situations where the person establishing the trust is not able to act for themselves, provide for distributions of income and assets to different groups of people including charities, allow assets to remain in a family’s bloodline for generations, avoid probate, and save gift and/or estate taxes.

Establishing and using trusts needs to follow very technical rules and should never be established without a plan and understanding the reasons and purposes for doing so and the advice of a knowledgeable and experienced attorney. When saving gift or estate taxes is the reason, knowledgeable financial and tax advisers and possibly valuation specialists and insurance agents should also be part of the team.

This article provides the general rules that are applicable for many and sometimes almost every situation, but with taxes and legal issues there are very few absolutes and almost everything has exceptions. That is why competent and experience advisors must be used in every situation.


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