5. About Taxes
(1). What about Taxes?
Living
trusts are essentially tax neutral while the trustor is living (i.e., for income
taxes) and provide no special estate tax savings that cannot otherwise be
achieved through the use of a will. During the trustor's lifetime, all income is
taxed to the trustor; no separate income tax return is required as long as the
trustor is also acting as a trustee. A living trust provides no income tax
advantages.
(2). Do you need a
federal tax number for the trust?
No. A
federal tax number is not needed for a trust for a married couple until one of
the trustors dies, or both trustors resign as trustees or become incompetent.
For a trust for a single person, a federal tax number will be required after the
trustor dies. Until death or resignation, the trustors’ Social Security numbers
will be used as the trust tax number.
(3). Does your tax
status change when you create a revocable living trust?
No. As long
as you are the trustee of your trust, any income generated by assets owned in
your living trust are taxed as if they were still held in your name and reported
on your personal 1040 form. No special taxpayer identification number and no
special tax forms are required.
(4). Will your property taxes
increase if you transfer your real estate into a trust?
No.
State law stipulates a special exemption for property placed into a trust for
the benefit of the Grantor.
6. Miscellaneous
(1). Are living trusts valid in all 50 states?
Yes. A
living trust is valid in all states and in most foreign countries.
(2). Do you really need to read all of the pages of the
trust before you sign it?
Yes, although the trust may be lengthy, you are expected
to be familiar with its basic provisions and you should ask your attorney for an
explanation of any parts of the trust that you do not understand. If a trustor
does not understand the provisions of the trust, it might be declared an invalid
agreement if it is challenged in court.
(3). Do trust documents become public information when
someone dies?
California law requires that notice be given to trust beneficiaries and the
decedent’s heirs if all or part of the trust becomes irrevocable after the
death. The beneficiaries and heirs are then given an opportunity to request a
copy of the trust. The trust might become public information if there is a court
challenge to the trust, in which case a copy of the trust will be filed with the
court.
(4). Does the Trust Provide Protection from Creditors?
No. Assets owned by the living trust are treated as the trustor’s own assets if
there are creditor problems. A trust does not insulate your assets from the
legitimate claims of creditors.
(5). When should you
update a trust?
You can
change or amend your trust as often as you wish. You should change your trust by
giving the trustee a signed, written amendment to the trust in the following
situations:
● there is a change in your marital status;
● the birth or adoption of a child;
● you move to another state;
● there is a significant change in your financial status;
● one of your beneficiaries dies;
● there is the death or incapacity of a named trustee.
We suggest, after two or three changes, you make an "amendment in entirety"
incorporating all of your changes into one document.
(6). How does the
trust end?
A living
trust is dissolved when all of the assets have been distributed or it may be
revoked by the Grantor(s) at anytime.