RETAINED INTEREST
Back to GlossaryDefinition
Typically in a trust, whether revocable or irrevocable, where the settlor has retained some part or interest, such as an income stream, in the property transferred to the trust
Summary
A retained interest occurs when someone (the settlor) creates a trust but keeps certain rights or benefits from the property they transferred into the trust. Think of it as 'having your cake and eating it too' - you've given property to a trust, but you've kept some strings attached. Common retained interests include the right to receive income from trust assets, the power to revoke the trust, or the ability to control how trust assets are invested or distributed.
Usage Context
Understanding retained interests is crucial when studying trust taxation, estate planning strategies, and the distinction between complete and incomplete gifts for tax purposes.
Common Confusions
- Thinking that any retained interest eliminates all tax benefits of a trust
- Confusing retained interest with being a beneficiary of the trust
- Believing that retained interests are only possible in revocable trusts
- Assuming that all retained interests have the same tax consequences
