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Planning Your Estate – Part 8

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Income Taxes – As long as you are the trustee or a co-trustee, no separate income tax returns are required to be filed for your living trust. The taxpayer identification number for the trust is your social security number and all income and deductions related to the assets held in the trust are reportable on your individual income tax returns. When you are no longer a trustee of your trust, then income tax returns must be filed by the trustee, reporting all of the income and deductions relating to the trust assets to the IRS and attributing them to your personal return. No additional tax is assessed by reason of the living trust. After your death, the income taxation of the living trust is similar to that applicable to a probate estate.

Estate Taxes - While a living trust may contain provisions which can postpone, reduce or even eliminate estate taxes, similar provisions could be placed in a will to accomplish the same tax planning.

Transferring assets to your living trust

Once your trust has been signed, a very important task remains to be accomplished. In order to achieve your objectives of avoidance of court-supervised onservatorship proceedings if you are incapacitated or require probate at your death, assets must be transferred to the trustee of the living trust. As I previously discussed, this is known as “funding” the trust.

A living trust can hold both separate and community property. If community property is held in a living trust, then both spouses are the grantors. Care must be taken to carefully designate the property held in a living trust by married persons as either separate or community property.

If you own real estate in another state it is appropriate to transfer title of that asset to your trust to avoid probate in the other state.

You may also want to consider changing beneficiary designations on life insurance policies, to the trust. As for beneficiary designations on a qualified plan, such as a 401 (k) or IRA, serious income tax issues require the advice of a qualified professional concerning the appropriate beneficiary designation on those assets.

Charlotte L. Ruse is a Kern County registered and bonded Legal Document Assistant (LDA), serving Kern County for 12 years by providing affordable self-help legal document preparation and Notary Public services. Kern County LDA #95 EXP. 10-1-17. I am not an attorney. I can only provide self-help services at your specific direction.