When people think about avoiding taxes they often think of using trusts as shelters.
Unfortunately, those assumptions about trusts as tax shelters are wrong. Today I wanted to clear the air and lay out precisely the tax implications of a revocable living trust.
It's probably best to just start at the beginning and talk a little bit about what a revocable living trust is and what it does.
The way I usually describe trusts to people is to imagine you've got a box. You own this box. You can put stuff in the box or take stuff out of the box any time you want.
While any particular thing is in the box, however, to the outside world the box is seen as the owner of that thing.
When it comes to this box, while you are alive, you have several different roles.
First, you are the owner and creator of the box (the "trustor").
Second, you are the manager of all of the property in the box (the "trustee").
Third, you are the one who benefits from the property within the box (the "beneficiary").
To say it plainly, while you are alive you are all things related to the trust. This also helps to explain while you are alive you have complete control over the the trust.
You can put stuff in or take it out, change the rules of the trust, and even destroy the trust if you want. Essentially you have the ability to do anything you want with the trust.
This great amount of flexibility makes it convenient while you are alive for all of the reasons mentioned above. BUT, it is also this access and ease of revision that prevents you from seeing any tax relief from a revocable living trust.
Because you are free to make endless revisions and essentially do whatever you want, in the eyes of the government any property within the trust is said to "pass through" to you for tax purposes.
In english, this just means you get taxed on your property in a revocable living trust the same way you did before it was in the trust.
There is ONE POINT to take into account, however, when it comes to revocable living trusts and taxes.
Once you die, the revocable trust transitions into an irrevocable trust and taxes on an entirely new set of characteristics (and tax implications.
We'll talk more about that in another post.
Cheers.
Christopher Small
If you have any more questions or think you might want some help, click the link below to schedule a phone or in person strategy session. Looking forward to it!
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Christopher Small wants to help you live a rich life now and leave a rich legacy.
Estate Planning TV is all about one thing - getting you to realize how important estate planning is to you while you are alive, and the power estate planning can have in shaping your legacy.
You'll find information here on estate planning, financial planning, productivity, finance, self-improvement, family protection, tax avoidance, retirement planning, estate taxes, charitable giving, investing, life insurance, asset protection, and much much more!
Christopher is the owner of CMS Law Firm LLC, a Seattle estate planning law firm. CMS Law Firm does three things really well: (1) estate planning; (2) probate; and (3) trust administration.
Christopher is a speaker, a blogger, a husband, a father, a golfer, and really good at helping people create the life of their dreams.
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By: CMS Law Firm LLC
Title: The Tax Implications of a Revocable Living Trust | Estate Planning TV 046
Sourced From: www.youtube.com/watch?v=89HE_PTcJW4
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