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Law Educator, Esq.
Law Educator, Esq., Attorney
Category: Business Law
Satisfied Customers: 110503
Experience:  All corporate law, including non-profits and charitable fraternal organizations.
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The trustee of an irrevocable trust of which I am the beneficiary

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The trustee of an irrevocable trust of which I am the beneficiary insists that they will not terminate the trust (by declaring it uneconomic) unless I agree to be responsible for the final Form 1041. The sole asset of the trust is a membership interest in an Mo. LLC of which I am also otherwise a member. Since I am unwilling to agree to being responsible for the final Form 1041, the LLC manager has offered to have the LLC pay any taxes due on the trust's final 1401 and for the CPA's services also. Can an effective letter agreement be drafted such that I can rely on the LLC manager's representation that the LLC will pay the taxes due on the trust's final Form 1401 and also that that payment will not simply be taken from my LLC capital account?
Thank you for your question. I look forward to working with you to provide you the information you are seeking for educational purposes only.

As you know, the irrevocable trust cannot simply be terminated just by declaration, you would have to actually go to court and prove that the trust is uneconomical and as such should be dissolved. This requires more than a letter agreement because the trust is "irrevocable" and that means the trustee and beneficiary cannot just terminate it as they please and file the final 1041, it means a petition must be filed in court to dissolve the irrevocable trust for good cause. This means attorney's fees are needed, because an attorney is needed to represent the trust in court matters.

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Customer: replied 2 years ago.
Relist: Other.
Question not read closely enough before responding.
Thank you for your response.

If the trustee and beneficiary agree you still have to go to court to get the final dissolution as it is an irrevocable trust.

However, as far as a letter of agreement between the LLC and the trust, yes, you can have a contractual agreement between you and the LLC that states that "The LLC agrees to pay any taxes due upon dissolution of the trust and also agrees to pay for any accounting services required to prepare the 1041. The LLC further agrees that the payment of these taxes and fees will be borne by the LLC and will not be passed down to the beneficiary upon dissolution."

That would be the type of agreement you are looking for I believe.
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