Clifford Trust

What Does Clifford Trust Mean?

A Clifford trust is a short-term trust that allows a grantor to place an income-generating asset in the name of a beneficiary for a period not exceeding ten years. The beneficiary is typically a minor. At the end of the trust term, the asset is transferred back into the name of the grantor.

Insuranceopedia Explains Clifford Trust

The beneficiary of a Clifford trust is typically the child of the grantor. Historically, this trust was used to minimize tax liabilities, as transferring assets to minors resulted in significantly lower taxes. However, in 1986, Congress recognized that this trust was being exploited for tax avoidance and mandated that the taxpayer must remain the grantor throughout the trust’s term. As a result of this legislative change, the use of Clifford trusts has declined significantly compared to their previous popularity. Since Clifford trusts largely fell out of use, families looking to provide for children today more often rely on life insurance, where the relevant tax question is whether the payout itself is taxable.