Is there any type of trust or trust fund that will provide an income tax shelter while I am living? S. G.
Trusts can be used to defer taxes or to shift taxes to a minor or someone in a lower tax bracket, but there is no trust or trust fund that provides a tax shelter per se.m If you are eligible for either an Individual Retirement Account or a Keogh plan, you may use a trust to defer taxes on as much as 15 percent of your current income to limits of $1,500 and $7,500, respectively. You may not understand the concept of a tax shelter. Shelters do not allow you to avoid taxes. Shelters merely enable you to convert ordinary income into capital gain income through a variety of means or defer taxes. Income-producing real estate may shelter some current income from taxes through depreciation, but the cost basis also decreases. At a later sale, the capital gain tax liability will be greater. Shifting income from liability for taxes at ordinary rates to longterm capital gain rates saves up to 60 percent of the taxes. But, trusts cannot be used to avoid taxes while you are living and earning or receiving income.