Alimony Trust

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DEFINITION of 'Alimony Trust'

A legal arrangement where property is transferred to a former spouse as a source of support following a divorce or separation. The payor spouse transfers investments and other assets that generate income into an alimony trust for the recipient spouse or beneficiary. The payor spouse cannot claim an alimony deduction on the income from an alimony trust, while the recipient spouse is taxed on the income but not the principal.

BREAKING DOWN 'Alimony Trust'

Alimony trusts are particularly useful in situations where a greater degree of protection is desired, either from the payor spouse or recipient spouse's point of view. For example, the payor spouse may be concerned about the recipient spouse's lack of financial experience in managing a large divorce settlement. Similarly, the recipient spouse may be concerned about the risk of the payor spouse's business becoming insolvent, which may have a detrimental impact on his or her ability to make continuing support payments.

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RELATED FAQS
  1. Can I put my IRA in a trust?

    You cannot put your IRA in a trust while you are living. You can, however, name a trust as the beneficiary of your IRA and ... Read Full Answer >>
  2. How does the trust maker transfer funds into a revocable trust?

    Once a revocable trust is created, a trust maker transfers funds or property into the trust by including them in a list with ... Read Full Answer >>
  3. What is the difference between a revocable trust and a living trust?

    A revocable trust and living trust are separate terms that describe the same thing: a trust in which the terms can be changed ... Read Full Answer >>
  4. How exactly does one go about revoking a revocable trust?

    The basic steps involved in revoking a revocable trust are fairly simple, and include transfer of assets and an official ... Read Full Answer >>
  5. What is the difference between a revocable trust and an irrevocable trust?

    An irrevocable trust and a revocable trust are differentiated through the ability to change the trust. With an irrevocable ... Read Full Answer >>
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