Income Taxation Of Trusts And Estates - Revocable / Irrevocable Trusts
- Has three parts - Grantor, Trustee and Beneficiary.
- Trust can be changed at any time.
- Separate tax return can be filed, but rarely done (requires grantor to obtain Tax ID Number).
- Common for grantor and trustee to be the same person.
- Grantor retains control of the assets - therefore they are responsible for paying the tax liability associated with the income and realized gains generated from the trust.
- Avoids probate.
- Cannot be changed after the agreement is signed.
- Most trusts revert to irrevocable at death of grantor.
- Typically used for estate tax planning, asset protection, probate avoidance or charitable gift planning.
- Grantor, trustee and beneficiary are usually always different individuals or organizations.
- Separate tax identification number is issued.
- Taxes due from income, gains and losses are paid by the trustee, typically from the trust.