Tax Checkpoints: Income, estate, and gift tax considerations should be kept in mind at all times when drafting an inter vivos trust instrument. The trustor may be subject to a gift tax on creation of an inter vivos trust. However, the trustor is generally not taxed on trust income and the trust property is ordinarily not considered part of the trustor's estate for tax purposes, unless the trustor has retain certain prescribed beneficial interests in or controls over the trust property. The trust is subject to taxation as a separate entity on income that it accumulates, but not as to income it distributes. The trustee is not subject to taxation on trust income but is responsible for tax reporting. The beneficiary is generally taxed on trust income as received. The usual consequences of trust creation and operation may be assured or changed for the better by proper drafting. (26) http://www.mindserpent.com/American_...ur/trusts.html

Lights starting flashing and bells ringing when I read the above. I'll need some time to formulate my thoughts, but I wanted it in the thread so I could refer to it easily.

Thanks