Your Federal and State Income Taxes Are Not Affected by Creating a Properly Drafted Revocable Trust

HNWElder Law, Estate Planning

Revocable Trust

  • A Revocable Trust is a popular estate planning tool.
  • Some people think that creation of a Revocable Trust creates complexity under the tax code.
  • This article discussed Revocable Trusts and the tax laws.

If a person creates a Living Revocable Trust, what impact (if any) will it have upon a person’s income taxes?  Will the person need to file 2 sets of tax returns for the Trust as well as one for himself/herself personally each year?  Will he or she need to obtain a new tax identification number for the trust? If so, it sounds like a hassle, doesn’t it?

Not so; it’s no big deal! You need not be concerned.  A properly drafted Revocable Living Trust will have no tax impact.   Your Living Trust is a “grantor” Trust created by you for your own benefit.  The IRS permits you, the grantor, to file income tax returns just as you always have.   You do not need a new taxpayer identification number.  You will use your Social Security Number, just as you always have.

Too many people deny themselves and their families the benefits of a living trust because they think it will be a hassle, tax-wise.  Unfortunately, even some well meaning brokerages and banks also have this misconception.

Note that a new tax identification number will be required once you pass away.  At that point, the successor trustee will begin managing the assets in the Trust and must apply for a new number form the IRS.   That nine digit number is called an Employer Identification Number or EIN (even though it has nothing to do with employees).  The new number will identify the  Trust for all tax purposes until the Trust is terminated.

To discuss your NJ estate planning matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing consultations if you are unable to come to our office.

By Fredrick P. Niemann, Esq., of Hanlon Niemann & Wright, a Freehold Township, Monmouth County NJ Estate Planning Attorney

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