Your Guide to the Summit Irrevocable Trust
The Summit Irrevocable Trust is a powerful estate planning tool designed to provide robust asset protection and multi-generational legacy planning while ensuring full compliance with the Internal Revenue Code (IRC) and Utah law. This guide explains how the Trust works, its benefits, and its tax implications, emphasizing transparency and adherence to IRS regulations, particularly Subchapter J (§§ 641-685). Unlike non-compliant schemes, this Trust does not claim improper tax deferral and ensures all income is properly reported and taxed.
What Is the Summit Irrevocable Trust?
The Summit Irrevocable Trust is a non-grantor, irrevocable, discretionary spendthrift trust governed by the Utah Uniform Trust Code (Utah Code Ann. §§ 75-7-101 et seq.). It is structured to:
Protect Assets: Shield family wealth from creditors, lawsuits, or divorce claims.
Avoid Probate: Facilitate seamless asset transfer across generations.
Support Beneficiaries: Provide discretionary distributions for health, education, maintenance, and support (HEMS).
Comply with Tax Law: Operate as a separate taxable entity under IRC § 641, with all undistributed income taxed at trust rates.
Key Features
Irrevocable: Once funded, it cannot be revoked, ensuring permanence for asset protection.
Non-Grantor: No income is attributed to the Settlor or asset sellers (IRC §§ 671-678).
Discretionary: The Trustee controls distributions, preventing forced payouts.
Spendthrift: Protects assets from beneficiaries’ creditors (Utah Code § 75-7-502).
Tax Compliance: All income is reported on IRS Form 1041, with undistributed amounts taxed to the Trust.
How Does it Work?
Formation: A nominal third-party Settlor creates the Trust, with no control or beneficial interest.
Funding: The Trust purchases assets (e.g., real estate, business interests) at fair market value (FMV), documented by secured promissory notes with market-rate interest (IRC § 1274).
Management: A Trustee (e.g., a family member or professional) manages assets, with oversight from an independent Trust Protector.
Distributions: Beneficiaries (e.g., family members) receive discretionary distributions under HEMS.
Taxation: The Trust files Form 1041 annually, reporting all income. Undistributed income is taxed to the Trust; distributions shift tax to beneficiaries via distributable net income (DNI) under §§ 651-662.
Asset Protection Benefits
The Trust leverages Utah’s strong spendthrift laws to:
Shield assets from beneficiaries’ creditors until distributions are made.
Protect against lawsuits, divorce settlements, or bankruptcy claims.
Remove assets from personal estates, avoiding probate and reducing liability exposure.
Tax Implications - Fully Compliant
The Summit Irrevocable Trust is a separate taxable entity under IRC § 641. Key tax features include:
No Deferral on Undistributed Income: All income (e.g., rents, dividends, capital gains) is taxable to the Trust if not distributed, regardless of allocation to principal under IRC § 643(b). The IRS has clarified (e.g., in AM 2023-006) that such allocations only affect DNI for distribution deductions, not overall taxable income.
Distributions: Income distributed to beneficiaries carries out DNI, shifting tax liability to them at their rates.
Reporting: The Trustee must file Form 1041 annually, reporting all income and paying taxes on undistributed amounts. Independent CPA review is recommended.
FMV Sales: Assets are sold to the Trust at FMV, supported by appraisals, to avoid gift tax (IRC § 2512) or income recognition (IRC § 1001).
This structure avoids abusive tax schemes flagged by the IRS, ensuring compliance and transparency.
Who Is It For?
The Summit Irrevocable Trust is ideal for:
Business owners seeking to protect company interests or plan succession.
Professionals (e.g., doctors, attorneys) facing litigation risks.
High-net-worth individuals with estates over $1 million.
Families focused on multi-generational wealth preservation without aggressive tax strategies.
It is not suitable for those seeking tax deferral or full control over assets.
Getting Started
Setting up the Summit Irrevocable Trust requires careful planning to ensure compliance:
Consultation: Meet with Cutler | Riley to assess your goals and confirm suitability.
Asset Valuation: Obtain independent appraisals to establish FMV for asset sales.
Trust Setup: Draft and execute the Trust with a nominal Settlor, Trustee, and Trust Protector.
Funding: Transfer assets via arm’s-length sales, documented by promissory notes.
Tax Compliance: Engage a CPA to file Form 1041 and ensure proper income reporting.
Why Choose Cutler | Riley?
Our attorneys specialize in compliant estate planning, prioritizing:
Asset Protection: Leveraging Utah’s trust-friendly laws.
Tax Compliance: Avoiding schemes flagged by the IRS (e.g., AM 2023-006).
Customization: Tailoring the Trust to your family’s needs.
Schedule Your Free Consultation
Ready to protect your legacy? Contact Cutler | Riley to discuss the Summit Irrevocable Trust and how it fits into your estate plan.