How does a revocable living trust affect income and estate taxes?

Many Missouri residents are aware of the advantages of creating a revocable living trust as part of an estate plan. Residents with questions may visit some earlier posts on this blog, which cover a number of aspects related to forming trusts in Missouri. While some questions may pertain to creating a trust, others may concern trust administration.

One common and important question pertains to the effect of revocable living trusts on income and estate taxes. During the trust settlor's lifetime, a revocable living trust does not have an impact on income tax, which means it neither increases nor decreases the settlor's tax burdens.

In fact, if a settlor is a trustee or co-trustee of a revocable living trust, any income from the trust's assets held are directly reported by using the settlor's Social Security number. Therefore, no separate filing is required. However, after the death of either or both settlors, the trust must have its own tax identification number, and the applicable income tax rate in such cases is similar to the rate established after probate.

A revocable living trust, however, is subject to estate tax, but proper planning by a creator and settlor can significantly reduce that amount upon a settlor's death. Some of the popular tools for reducing tax liabilities involve drafting a comprehensive will or a revocable living trust by using legal measures such as disclaimers. However, some exceptions do apply.

Creating a revocable living trust is an intelligent step toward safeguarding one's estate from passing through probate, which is filed with the court and is therefore accessible as a public document. However, a comprehensive estate plan often requires a thorough understanding of Missouri's probate and estate laws, which may complicate matters for some people. Getting the right information is a good option for those residents with any questions or issues regarding estate planning.

Source: The Missouri Bar, "Probate Law Resource Guide," Accessed on Jan. 16, 2015

No Comments

Leave a comment
Comment Information