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Income Taxation Of Trusts And Estates - Revocable / Irrevocable Trusts

Revocable/Irrevocable Trusts  

Revocable Trust:

  • 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.

Irrevocable Trust:

  • 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.
Trust Income
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