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

Stars

Peter provided outstanding advice and preparation of a will and trusts.

Stars

Peter was excellent. He explained everything very clearly and is super friendly. My wife and I originally tried using a lawyer through group legal coverage, but unfortunately the old adage - "you get what you pay for" - applied to the other lawyer, and we decided to go with a real professional.

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...

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!

Stars

Great friendly staff

Stars

Tremendous firm with bright, kind and tenacious people. Great representation for our family.

Stars

I'm totally satisfied with Klenk Law. Peter has a great legal mind with the personality of the guy next door.

Stars

Everything about my experience was a 10+! Peter and his staff made what I thought would be a difficult process easy and understandable. Every detail was handled correctly. No other firm could possibly do better than Klenk Law!

Stars

Peter and his staff are very responsive and always willing to help my clients and in a cost efficient manner.

Stars

Like another reviewer, I contacted Peter through his website using the free consultation link, for a question regarding PA inheritance taxes. The question was quite technical and difficult to explain, and the answer was nowhere to be found on the web. Peter grasped precisely what I was asking, and provided a clear, helpful response (with a touch of humor) the very next day.

Stars

Answered my question quickly and referred me to a colleague that could handle my problem

Stars

Mr. Klenk, quickly understood the circumstances presented and provided clear and concise advice. This advice provided me with the information I required to progress the case to my advantage.

Stars

Peter is excellent. I had a very complicated situation with my parents' estate planning and potential Medicaid needs. Peter was very knowledgeable in estate planning matters, able to define the best solution for the situation. Additionally, he was congenial and able to communicate effectively to my senior citizen parents the benefits of estate planning. He earned my trust, and more importantly, my parents' trust in a 45 mins consultation period. Highly recommend Peter. He is very easy to work with.

Stars

Peter recently gave a presentation about Wills & Trusts at my employer, and it was fantastic! He was extremely knowledgeable and provided valuable information to the group. People were very engaged and asked several questions, all of which Peter thoroughly answered. Personally, my husband and I have selected Peter to help us with our estate planning, and he has been very helpful in providing us with all of the information we need to provide a secure future for our family. Thank you, Peter!

Stars

Peter provided outstanding advice and preparation of a will and trusts.

Stars

Peter explained things in a way that was easy to understand. Everything was done in the time frame he said it. Could not have been better!

Stars

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

Stars

Peter and his staff handled all of our needs in a very professional and timely matter.

Stars

Peter Klenk made a complex subject understandable and allowed us to move forward with our estate planning. He was patient with our questions and creative in the solutions he proposed.

Stars

Peter explained a complex subject very clearly, helped us to decide the best approach to managing our estate and then made it very easy for us to execute the required documents. He will be a valuable resource for years to come and clearly has a great understanding of estate law that will lead to innovative solutions for us. I would unhesitatingly recommend him for estate planning.

Stars

Fantastic customer service. Very personable and most importantly they provide great explanations of what is required based on your individual needs. Highly recommend Klenk Law for anyone that needs to create a will and estate documents.

Stars

Always professional and very responsive. Everyone on the staff that I have worked with. I look forward to continuing our relationship.

Stars

Surprisingly easy

Stars

Affable...yet surprisingly cerebral estate planning atty. High marks all the way around.

Stars

Peter and his associates made things easy for us.

Let us put our expertise to work for you.

Free consultation within 24 hours.