Business Glossary

trust set up for at least ten years and a day, which made it possible to turn over income-producing assets, then to reclaim the assets when the trust expired. Prior to the tax reform act of 1986 , such trusts were popular ways of shifting income-producing assets from parents to children, whose income was taxed at lower rates. However, the 1986 Act made monies put into Clifford trusts after March 1, 1986, subject to taxation at the grantor's tax rate, thus defeating their purpose. For trusts established before that date, taxes are paid at the child's lower tax rate, but only if the child is under the age of 14. Since the Tax Act was implemented, few Clifford trusts are set up.

up to 1986, arrangement to provide a personal trust while the settlor is still alive. The income is paid to named children, who enjoy lower income taxes. After 10 years and a day, the property reverts to the original owner. The Internal Revenue Service had ruled that the income from the property in trust is not income to the original owner. The Clifford Trust was eliminated under the tax reform act of 1986 .