The 10-year Trust: For The Medium Haul

Long-term estate plans and short-range monthly budgets get much attention. But what about the middle run? This is where the 10-year trust comes in. This idea, often neglected, is a money-saver that you should be aware of in any review of affairs.

It has some fine advantages. A 10-year trust permits you to:

Split income temporarily for tax purposes.

Get back the income-producing property after the trust expires.

Act as trustee, and guide the investment of the principal.

It also has some highly practical applications (school financing, within limits), and can be worked to fit snugly with retirement-income plans. And note: The drawbacks (inevitable with any trust device) won't snuff out the life of the idea the moment you step into an adviser's office.

Take a case couched in prosperous terms. You have a son going to school in about 10 years. Your taxable income is £37,000 (45% top tax bracket): You set up a temporary 10-year trust for the boy, and put in enough to produce £1,000 a year in interest or dividends. The result: In 10 years, when he's ready for school, your boy - with the £1,000 per year invested at say 5% - has nearly £13,000, after taxes.

Meantime, since you're in the 45% bracket, you save £450 a year by not having to add the yearly £1,000 to your taxable income. You can figure, too, that for you to put aside the £13,000 over 10 years - in your tax bracket - you would need roughly twice as much income-producing property. Finally, at the end of the 10-year term - or it can be longer - you can return the securities to your own portfolio. This, of course, may tie in with your retirement income.

The temporary or short-term trust is flexible. You can use it for such things as supporting an aged aunt, establishing an insurance program for a child, or creating a nest egg fore a teenager who will one day need money to start up a business or profession.

The drawbacks? One is the possibility of having to pay a gift tax at the time you set up the trust. But the way around this usually is pretty clear since you and your wife together can give £60,000 free of gift tax, plus £6,000 a year to any one individual.

In some states, putting a child through school may be considered part of your legal obligation as a parent. In such a case, the income from your educational trust might be taxable to you, not the child. But there usually are clear, legal ways to avoid such obstacles. A competent trust adviser will see you around them.

There is a word of caution on trusts of all kinds. It applies particularly to the 10-year variety that looks so attractive at first glance: Don't be so anxious to garner tax savings that you lock up too many of your assets in a trust. All trusts - if they give you tax advantages - are binding, for whatever period they're set up. You must always judge carefully the benefit of tax savings against the risk that you may suddenly need the property that you have put out of your reach for 10 years.


Suntan - and Sunburn

The Indian Giver's Trust

It takes a long time for any innovation to make the grade in the field of estate planning. But in the last five years it has become clear that the revocable "living" trust really has come into its own. With a revocable trust, you transfer property to your family without using a will. This feature - avoiding probate - has picked up interest. It will save your heirs delay, red tape, and some money. But there are other, even sharper advantages to look into. You save no income taxes because you can cancel the trust at any time - but the right to cancel, in itself, can be a prime advantage. "On balance," says James North, Chase Manhattan's top trust man, "the revocable trust is an exceptionally smart... see: The Indian Giver's Trust