Connors and Sullivan, Attorneys at Law, PLLC
For a complimentary consultation
212-235-1339 718-414-6209

How do taxes work for irrevocable and revocable trusts?

Whenever money is involved, odds are high the Internal Revenue Service (IRS) is also involved. One example involving estate planning is the use of trusts. Trusts are essentially legal tools that govern the distribution of certain funds. This piece will discuss how the IRS taxes two main types of trusts: revocable and irrevocable.

IRS and the revocable trust

The creator generally has control over a revocable trust. As a result, in most cases the IRS treats a revocable trust as a grantor trust. For tax purposes, the IRS considers the creator the grantor and holds the grantor responsible for tax obligations. This basically means the creator is expected to include any income from the trust within their tax returns.

IRS and irrevocable trust

In contrast, a creator generally does not have control over an irrevocable trust. This distinction results in the IRS treating an irrevocable trust as a separate entity. The creator does not include the trust income on their tax returns, instead the trust itself is responsible for any potential tax liabilities.

However, beneficiaries who receive distributions from the irrevocable trust are often responsible for any resulting tax.

Draft the trust to meet your need

It is important to note the reality of the tax obligations will vary for each trust. There is not one definitive rule that applies to all trusts. The actual impact of taxes on the trust depends on the wording used to create the trust. A well drafted document can provide the benefits of the trust while also minimizing and simplifying tax obligations.

No Comments

Leave a comment
Comment Information

Office Locations

Brooklyn:
Connors and Sullivan, Attorneys at Law, PLLC
7408 Fifth Avenue
Brooklyn, NY 11209

Phone: 718-414-6209
Fax: 718-238-2616
Brooklyn Law Office Map

Manhattan:
Connors and Sullivan, Attorneys at Law, PLLC
880 Third Avenue
New York, NY 10022

Ph: 212-737-2700
Map & Directions

Bayside Queens:
Connors and Sullivan, Attorneys at Law, PLLC
200-20 Northern Boulevard
Bayside, NY 11361

Ph: 718-225-7200      
Bayside Law Office Map

Middle Village Queens:
Connors and Sullivan, Attorneys at Law, PLLC
79-43 Metropolitan Avenue
Middle Village, NY 11379

Ph: 718-238-6500
Middle Village Law Office Map

Staten Island:
Connors and Sullivan, Attorneys at Law, PLLC
1250 Hylan Boulevard
Staten Island, NY 10305

Ph: 718-238-6500  
Staten Island Law Office Map

Contact Our Firm

Bold labels are required.

Contact Information
disclaimer.

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

close
Legal Leaders Presents Martindale-Hubbell | Top Rated Lawyers 2015 | Featuring AV Preeminent | Martindale-Hubbell Lawyer Rating NAELA | National Academy of Elder Law Attorneys, Inc. | Member | Leading the way in Special Needs and Elder Law