Skip to Content

We are a Veteran Owned Business, providing 20% discounts for Veterans, First Responders, Elementary and High School teachers. Please contact us to set up a phone or Zoom meeting. Taking care of you and your family, It's What We Do!

Klenk Law
Income-Tax

Who Pays the Income Taxes on a Revocable Trust?

Posted on Thu Nov 3, 2016, on Revocable Trusts and Living Trusts

From Our “Ask a Question” Mailbag: Income Tax Payments for Revocable Living Trusts

Most Recently Updated August 9, 2018.

“After being diagnosed with early-stage Alzheimer’s, I have been thinking about forming a Revocable Trust.  Who Pays the Income Taxes on a Revocable Living Trust?”

Income Tax Payments for Revocable Living Trusts

A Revocable Trust is a “Grantor Trust,” and, without going into painful detail, this means that you will report the income from all trust assets on your own tax return.  Revocable Trusts don’t get their own tax ID, like an Irrevocable Trust.  Instead, the trust uses your social security number. This makes reporting the income on your income tax returns easy.

Please visit my website for more information about Revocable Living Trusts.

You mentioned that your Alzheimer’s is prompting the trust’s formation. A Revocable Living Trust can be a reliable tool in helping you manage your assets while suffering from Alzheimer’s. But, you should plan carefully and implement checks and balances.

Revocable Living Trusts Can Help Those With Alzheimer’s Safely Manage Their Assets.

A Revocable Trust is a trust that can be “revoked.”  This way you can place assets into the trust where a “Trustee” manages them, but you can always take the property back.  The Revocable Trust is set up with you being the beneficiary.  So, the trust owns the assets for your benefit. Because you can revoke the trust and you are the beneficiary, Revocable Trusts are “Grantor Trusts.”  The Grantor is the person who creates the Trust.  The Grantor recognizes all income from a Grantor Trust.  Therefore, if you form a Revocable Living Trust you pay any income taxes due from trust assets.

For example, let’s say that you put your checking account and stock account into the Revocable Trust.  The Trustee will open a new checking and a new investment account using the trust’s name, but using your social security number. Your social security number reports all interest and dividends, and you pay taxes due on income as if you owned the assets under your name.

Alzheimer’s and Revocable Trusts.

When using a Revocable Trust to plan ahead for Alzheimer’s, consider these ideas.  First, you can name a trusted person as your co-trustee given the right to act independently.  This way you can currently manage your assets but, as your condition worsens, your co-trustee can seamlessly take over.  Second, appoint a Protector.  The Protector is a person (or persons) who can watch over your co-trustee and remove and replace them.  This check-and-balance helps ensure your assets are safe and that you are receiving the proper care.

We regularly draft Revocable Trusts as part of planning for Alzheimer’s.  I would be happy to talk to you about your particular situation.

More Planning Questions?

Income Tax Payments for Revocable Living Trusts is only a piece of the Estate Planning process. By all means, if you want to learn more, please read my more detailed article, Estate Planning Everything You Need to Know.

In Conclusion: Income Tax Payments for Revocable Living Trusts

I hope that this article was helpful in explaining Income Tax Payments for Revocable Living Trusts. Further, I included links to even more detailed information on my website so you can learn more. Therefore, please contact me and let me know how I did. Certainly, your comments and questions are welcome!

Let our Estate Planning lawyers help walk you through what can be a confusing process. To begin with, call to speak to one of our experienced estate planning lawyers.  By all means, our lawyers are ready to answer your questions. In fact, feel free to contact our office for a free consultation. Ultimately our goal is to make the process as painless as possible!

Wills, Trusts, Probate, and Estate Litigation, It’s All We Do!

 

Tags:

Alzheimer’s, Estate Planning, Estate Planning Attorney, Estate Planning Lawyer, Income Tax, Kelly Barse, Living Trust, Revocable Trust, Trusts

What Our clients are saying

Klenk Law Logo
Stars

AWESOME LAWYER! Peter Klenk is an exceptional attorney and a very nice person! Today I spoke with Peter about estate planning and was impressed with by his professionalism, cordiality, and attention to detail. I highly recommend Klenk Law for probates, wills, trusts, and other issues germane to estate planning!

Klenk Law Logo
Stars

You & your staff are the best thank you for everything.

Klenk Law Logo
Stars

When it came down to picking the right attorney to handle my affairs, I knew right away it was this firm. From speaking to their secretary to speaking to Peter I knew I was making the right decision. After only a few mins Peter knew right away what I was looking for and handled all my questions professionally and even gave me great feedback that put my mind at ease. All that without even giving a single penny! So of course I hired him! So far so good...

Klenk Law Logo
Stars

Peter and the whole team at Klenk Law are top notch. They are thorough, efficient and understanding of client needs. He was able to tailor our estate planning needs just how we envisioned.

Klenk Law Logo
Stars

I contacted Peter through his website using the free consultation link for a question regarding a will. While I was expecting only a few minutes, it was a lengthy conversation. He made sure he understood the situation by asking many questions before offering advice. He then went through my options and results of each one. He left it up to me to decide if I wanted to proceed and did not push me toward one or another. His website has very useful information which I definitely researched before I called him. While I decided not to proceed at this time, I feel I had enough information to make that decision. I would not hesitate to hire him should I need to in the future.

Let us put our expertise to work for you.

Free consultation within 24 hours.