TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Sunday, February 10, 2013

WSJ: As Parents Live Longer, Children Create 'Upward Trusts' to Help Them

WSJWall Street Journal:  Paying Them Back:

What should you do when mom and dad run out of money?

Thanks to medical and technological advances, people are living longer—but more of them are outliving their savings. That is prompting their children to transfer assets to their parents, say private bankers, trust attorneys and accountants.

The strategy is counterintuitive, and can invite huge tax bills and other financial hazards. Yet there are many different options available to adult children, ranging from paying bills and giving money directly to making intrafamily loans. There are even innovative "upward" trusts specially designed to transfer assets to the older generation. ...

One estate-planning strategy that is been gaining popularity over the past few years is a trust created with the parents named as the beneficiaries, sometimes referred to as an "upward trust." The parents usually live off the income generated by the assets within the trust, without tapping the core assets. ... Such trusts are ideal for when the child wants to make a substantial gift and doesn't feel confident about the parents' ability to manage the money. ... Trust attorneys and accountants can structure the trust to be as flexible or inflexible as the situation requires.

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