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Posted on Friday, September 9th, 2016 by Peter Klenk

From Our “Ask a Question” mailbag: “I am thinking about forming a trust for my minor child, but I read that a trust could be a “simple trust” or a “complex trust,” what is a complex trust?”

What is a Complex Trust?First, let’s define what a “Trust” is.  A Trust is an arrangement where one person (the “Grantor”) gives an asset to someone else (the “Trustee”) to hold for a “Beneficiary.”  A Trust’s terms can be outlined on one printed page but can easily stretch over 50 pages.  For example, in your case, you would be the Grantor.  You create the Trust and give an asset to the Trustee.  The Trustee holds the asset for your minor child who is the Beneficiary.

What is a Complex Trust…but First, What is a Trust?

Once you have placed an asset into a Trust, it is the Trustee’s duty to care for that property and follow the Trust’s terms as to investments.  For example, if you contribute $100,000.00 into your trust, the Trustee should then examine the Trust’s terms to determine what is a reasonable way to invest that money. Once invested, the trust will have income, such as interest or dividends. 

A Simple Trust Requires the Distribution of all Income, Complex Trusts do not.

A “Simple Trust” will demand the distribution of all income.  A “Complex Trust” will allow the Trustee to have the discretion to either distribute the income or to hold the income within the trust.  The word complex means that the trustee has more discretion, not that the trust’s terms are more complicated.  A tax return for a Simple Trust will show that all income has passed out to the beneficiary, where a tax return for a Complex Trust might indicate that some income stayed in the trust, so the trust pays the income tax due.

I would need to know more about your situation to advise you about which type of trust is a better fit for you. Both types have advantages and disadvantages, and with more information, I could help you decide which is better for your beneficiary.

Contact our office for a free consultation if you have further questions about Complex or Simple Trusts, or any other Estate Planning questions.  We can answer the question, “What is a complex Trust”, and even more!

Wills, Trusts, Probate, and Estate Litigation it’s all we do!

Peter Klenk, Esq.

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