Part
Three
The
Family Residence Trust
This
involves the owner
of the family residence
transferring the residence,
including all of its
furnishings, to a trust.
This is similar to
the equipment trust
in which the parties
claim inconsistent
tax treatment for the
trust and the owner.
The trust claims that
the exchange results
in a stepped-up basis
for the property while,
in the meantime, the
owner reports no gain.
The trust contends
to be in the rental
business and alleges
to rent the residence
back to the owner.
But, in most cases,
little or no rent is
paid. Instead, the
owner makes the contention
that he and his family
members are caretakers
or service providers
to the trust and, therefore,
reside in the residence
for the benefit of
the trust. Under some
arrangements, the family
residence trust receives
funds from other trusts
(i.e., a business trust)
which are treated as
the trust’s income.
In order to reduce
the tax that may be
due with respect to
such income (and income
from rent actually
paid by the owner),
the trust attempts
to deduct depreciation and expenses of maintaining and operating the residence.
If
you would like more
information regarding
asset protection, trusts,
family limited partnerships
or the subject of this
article please call
or email our office.
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