Revocable Living Trust-Tax Issues


Richard Morgan, Morgan and DiSalvo.

We’ve been talking about revocable living trusts. One of the big topics that comes up with revocable living trust is how is it taxed? How does all that work? Well, while you’re alive it is considered a grant or trust and uses your social security number as its tax ID number most of the time. Grant or trust means that you are the grantor or the creator and it is all taxed back to you. The trust does not have a independently significant status. It is you for income tax purposes. It will not file a separate income tax return while you are alive.

Upon your passing you as the grantor or deceased, there is no more grantor who’s alive and therefore it is a non-grantor trust and as a separate income tax payer. The way that works is the trust will file an IRS form 1041, you file a form 1040, it files a form 1041. It’s an informational tax return. In general it’ll show income earned for the year, expenses that are deductible for the year, your net taxable income for the year. And then on the return in general it allocates that taxable income to whoever received it. If the income stays in the trust, the trust pays tax at its rates. If the income is attributed out to your spouse, or a child, or whoever gets it then that person who gets that income will pay tax on that income.

Richard Morgan, Morgan and DiSalvo.

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