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What is a Short Term Trust? A Comprehensive Legal Overview
Definition & Meaning
A short term trust, also known as a Clifford trust, is a type of irrevocable trust established for a specific duration of at least ten years and one day. After this period, the principal amount in the trust returns to the grantor, the person who created the trust. While the trust is active, the income generated from the trust's assets is distributed to the beneficiaries, typically the grantor's children. This trust structure was originally designed to set aside funds for educational purposes and to provide tax benefits by allowing the income to be taxed at the beneficiary's tax rate, which is often lower than that of the grantor.
Table of content
Legal Use & context
Short term trusts are primarily used in estate planning and tax strategy. They are relevant in family law and financial planning, particularly when parents want to provide for their children's education while minimizing tax liabilities. Users can often manage the creation and administration of these trusts through legal forms available from resources like US Legal Forms, which offer templates designed by legal professionals.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
(Hypothetical example) A parent sets up a short term trust for their child's education, contributing $50,000. Over ten years, the trust generates income that is distributed to the child, who is taxed at their lower rate. After ten years, the original $50,000 returns to the parent.
State-by-state differences
Examples of state differences (not exhaustive):
State
Key Differences
California
Specific tax implications may differ based on state tax laws.
New York
New York has unique regulations regarding the taxation of trust income.
This is not a complete list. State laws vary and users should consult local rules for specific guidance.
Comparison with related terms
Term
Definition
Key Differences
Irrevocable trust
A trust that cannot be modified or revoked after its creation.
Short term trusts revert to the grantor after a set period.
Revocable trust
A trust that can be altered or revoked by the grantor at any time.
Short term trusts are irrevocable and have a fixed term.
Common misunderstandings
What to do if this term applies to you
If you are considering setting up a short term trust, it is advisable to consult with a legal professional to ensure it meets your specific needs. You can also explore US Legal Forms for templates that can help you create the trust efficiently. If your situation is complex, seeking professional legal assistance is recommended.
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