Clifford trust

An irrevocable trust, set up for at least ten years and a day, whereby income from the trust property is paid to the beneficiary but the property itself reverts back to the settlor when the trust expires.

• These trusts were often used by parents — with their children as beneficiaries — to shelter investment income, but the Tax Reform Act of 1986 eliminated the tax advantage by imposing the kiddie tax and by taxing the income of settlors with a reversionary interest that exceeds 5% of the trust’s value. This term gets its name from Helvering v. Clifford, 309 U.S. 331, 60 S.Ct. 554 (1940).

— Also termed short-term trust. [Cases: Internal Revenue 3362. C.J.S. Internal Revenue §§ 178, 180.]


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