When it comes to estate planning, one option that individuals may consider is setting up a trust. A trust is a legal arrangement where assets are transferred to a trustee who then manages them on behalf of the beneficiaries. One type of trust that some may opt for is a pass through trust agreement.
So, what exactly is a pass through trust agreement? Essentially, it is a trust that allows for income generated by the assets within the trust to “pass through” to the beneficiaries without being subject to any taxes at the trust level. Instead, the beneficiaries will be responsible for paying taxes on the income they receive.
Pass through trusts are often used in situations where the assets within the trust are generating a significant amount of income. By using a pass through trust, the beneficiaries can avoid the potential for double taxation that may occur with other types of trusts.
It`s also important to note that pass through trusts can be established as either revocable or irrevocable. A revocable trust allows the grantor (the person creating the trust) to make changes or even revoke the trust altogether during their lifetime. An irrevocable trust, on the other hand, cannot be modified or revoked once it has been established.
When setting up a pass through trust agreement, it`s important to work with a qualified estate planning professional who can guide you through the process and ensure that everything is set up correctly. Additionally, it`s important to carefully consider who you choose as the trustee and beneficiaries, as this will have a significant impact on the management and distribution of the assets within the trust.
In summary, a pass through trust agreement is a type of trust that allows for income generated by the assets within the trust to pass through to the beneficiaries without being subject to taxes at the trust level. If you`re considering setting up a trust as part of your estate planning, it`s worth exploring whether a pass through trust may be the right option for your particular situation.