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Petitioners assert that the personal expenses that were paid
from the trust bank account were accounted for as a distribution
and that only the legitimate business expenses were deducted.
Even so, the Morrows had the ability to control fully the trust’s
activities and trust assets for their own benefit because no
independent trustee had any meaningful control over the
management of the trust.
No one other than the Morrows held any meaningful economic
interest in the trust because, under the terms of the trust
agreement, Charlotte Morrow was the named beneficiary and Peter
Morrow was the successor beneficiary of the income and principal
of the trust.
Petitioners argue that the Morrows achieved benefits from
operating their sole proprietorship within a trust and not
forming a corporation because: (1) The trust could protect the
business assets from their personal liabilities and conversely
protect their personal assets from liabilities arising from the
business operations; (2) the trust could avoid the State
franchise tax imposed on the profits of a corporation, which
would have been approximately $1,105; (3) the trust would not
have to pay the State incorporation filing fee of $300; and
(4) the trust did not have to maintain corporate formalities,
such as shareholder minutes.
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Last modified: May 25, 2011