Clifford Trust Law and Legal Definition

Clifford trust is an irrevocable but temporary trust whereby income from the trust property is paid to the beneficiary but the property itself reverts back to the settler when the trust expires.

In a clifford trust, current income as well as the liability for income tax on that income, belonged to a designated beneficiary. At the end of a period not shorter than ten years, the principal would revert to the settlor.

The objective of a clifford trust was to shift income from high tax bracket parents to children in a lower bracket. However, the Tax Reform Act of 1986 eliminated the tax saving features of the Clifford Trust by taxing the settlor on the income rather than the beneficiary.

Clifford trust is also termed as short-term trust.