Your Model Offshore Trust may be even more useful as an estate-planning tool for your heirs, including perhaps your surviving spouse, than for you personally. The Trust will never be in anyone’s taxable estate (other than your own), so any accumulation of value in the Trust will escape further estate tax.
In particular, apart from a QTIP portion, the Trust would not be in the taxable estate of your surviving spouse. He or she or any other member of the Beneficiary Class could undertake transactions (including transactions such as those described above under Offshore Estate Planning) to build up the Trust and diminish the member’s own taxable estate. The result can be less — substantially less, perhaps zero — tax on the member’s estate and more untaxed wealth for the member’s heirs.
In appropriate circumstances, a Beneficiary who wants to use the Trust for his own estate planning can request that the Trustee establish a separate Trust whose Beneficiary Class is limited to the member’s intended heirs.
Unlike transactions between the Grantor and his own Model Offshore Trust, transactions between other Beneficiaries and the Trust have income tax consequences. Because the Trust’s income, after the Grantor’s lifetime, will not be subject to direct U.S. taxation, transactions between a Beneficiary and the Trust can be structured for the maximum tax advantage of the Beneficiary, without regard for the tax consequences to the Trust. Thus transactions a Beneficiary might undertake for estate planning purposes can also have the effect of reducing his personal income tax liability .
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