What you have is a transparent legal entity in which you are
the grantor, settlor or trustor, the trustee and the
beneficiary. It's kind of a me, myself and I situation.
Since there are no third parties involved yet, the IRS does
not expect the entity to file a tax return. All the income
from trust assets (those bank accounts, stocks and bonds,
etc.) is reported on your personal tax returns. When you
decide you can no longer manage your own affairs, or someone
decides for you, then another person or agency will step in
as trustee, usually one you have appointed when you created
the trust. When you die this same situation will occur -
your successor trustee takes over. Then a tax return for the
trust may be required.

As far as the agents for transfering title into your trust
wanting to see the trust, it is customary for attorneys who
draw the documents to prepare a summary of the trustee's
powers for the benefit of these agents. It is none of their
business who gets your stuff after you are gone. One of the
benefits of having a trust is the privacy of your bequests.
Your banker does not need to know who gets you high school
swimming trophy or your shares of IBM. The banker and anyone
else dealing with the trust only needs to know that there is
a trust and that you as the trustee have the power to open
the account, take money out of the account, buy or sell the
property, etc. These powers are explained in the trust
document.

Don't worry about tax consequences of having a living trust.
When there are any you won't be able to worry about them.

Linda Dorfmont EA, CFP, CSA

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Stuart Bronstein wrote:

- quote -

Yes, a 1041 is required if the B trust will have gross
income of $600 or more, or a nonresident alien beneficiary,
even if the trust distributes all of its net income to
beneficiaries.

--
Greg Broiles, JD, EA
San Jose, CA
gbroiles[at]spamcop.net

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Me wrote:

- quote -

Other legal consequences, off topic for this group, include --

1. A (slight) difficulty in refinancing a mortgage -- you
might need to remove the property from the trust in order to
refinance. Whether you can put it back is a legal question
far beyond the scope of this group.

2. It has been said on misc.legal.moderated that putting
the property in trust -- even a living trust -- eliminates
the homestead protection of the property. At least in
Florida.

At least before using the trust, and, if possible, before
setting up the trust, you should contract with a lawyer to
determine the consequences. All we can say here is that a
living trust shouldn't have any tax consequences if you
remember to use your SSN as the Tax ID of the trust. If you
get an EIN for the trust and use it, the trust has to file
nominee 1099s with the IRS, but YOUR tax return is not
significantly affected.

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Stuart Bronstein <spamtrap[at]lexregia.com> wrote:
- quote -

Under the usual scenario, the B trust is formed at the death
of the first spouse to die. It is funded with the designated
assets of the decedent, up to the estate exclusion limit,
and becomes a SEPARATE tax entity from the surviving spouse.
The surviving spouse is usually the beneficiary of the
INCOME generated in this "Family Trust" -- but does not
"own" the assets of the Trust. As a separate tax entity, the
trust files a 1041 fiduciary return each year and
"distributes" the income generated, via a K-1 form, to the
income-beneficiary. That income is then included in the
distributee's 1040 return and taxed at his/her tax rates
(which usually are substantially lower than trust tax
rates).

Upon the death of the second spouse, the trust (which is NOT
part of that spouse's estate) can be distributed to the
final beneficiaries (usually the children and/or
grandchildren) and dissolved. A final 1041 return is
prepared at that time, to distribute income earned in that
final year.

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Stuart Bronstein wrote:

- quote -

As the schedule K-1 is required, logic suggests the entire
1041 is required. (I also question whether that's the
"common scenario". It's not the case for my mother's bypass
trust.)

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Stuart Bronstein wrote:

- quote -

Yes. Grantor trusts are the only trusts not required to
file returns.

Phoebe

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Jay wrote:

- quote -

There is a specific exemption in California law saying that
transferring property to a revocable trust is not a "change
of ownership" for purposes of increasing property tax.

Stu

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- quote -

I got a living trust, and my experience has been like the
other posters have indicated: forms 1040 and 540 are
prepared just like before.

Other considerations:

Inconveniences have been only minor: when opening an
account, some financial institutions will want a copy of the
first and last page of the trust document.

Somebody might try telling you that changing the
registration for a home to the trust is a "change of
ownership" as far as California proposition 13 is concerned.
Check in advance with your attorney, but I believe that it
is not a change of ownership for proposition 13 purposes. If
this happens, your attorney should be able to set them
straight.

(Note: I too am neither a tax nor legal professional.)

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Martha Matthews, EA wrote:

- quote -

Is a return required for a "simple" trust - one which is
required to and does distribute all of its net income? That
is the common scenario for a marital bypass (usually
referred to as a "B") trust.

Stu

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Ed Zollars, CPA wrote:

- quote -

This is not THAT uncommon. The last time I refinanced my
principle residence (2002), the particular instrument I
chose would not accept the property in a trust. I assume
they were worried about "spendthrift" trusts in which they
would not be able to recover the property in foreclosure,
rather than living trusts, but it may be that the low
processing costs wouldn't allow them to pay a lawyer to look
at the trust document to be SURE it was a transparent trust.

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Ed Zollars, CPA wrote:

- quote -

Bankers are overcautious these days. Even though there is
no legal necessity, many if not all bankers require someone
taking out a loan on real property to take the property out
of the trust before executing the mortgage. It can be put
right back afterwards. But the borrowers are seldom told
what is going on and what should be done. In reality the
title company should be told to prepare an additional
quitclaim deed, from the borrowers back into the trust, to
be recorded right after the mortgage or deed of trust is
recorded.

- quote -

I recently had a case just like that. The spouses had
actually died before it was discovered. The courts in
California are fairly liberal, however, and will fairly
easily give an order placing property into a trust without
probate if it is proven that is what the owners had wanted.

Stu

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hlpme2004[at]hotmail.com (Me) wrote in

- quote -

This is the part that trust promoters frequently leave out.

- quote -

If it is a Grantor Trust (most likely for a "living trust)
you can report everything on your 1040 as if the trust does
not exist. If it is not a Grantor Trust (and it will not be
a grantor trust the day after you die) you will need a
separate tax identification number and a fiduciary income
tax return (Form 1041) must be filed.

- quote -

If it is not a grantor trust it is wise to talk to a tax pro
who is experienced in doing 1041s at the first year. The
1041 can be complicated but it will depend on the trust
document and the assets involved.

- quote -

I am not in CA so someone else will have to help you.

If the only reason to have a trust is to avoid probate you
should talk to a legal and tax pro (they can be one and the
same person) to determine if you really need one. The first
consideration in an estate plan is what you want done with
your assets when you die or should you become incapacitated.
An attorney who is not interested in "selling" you a trust
may have alternatives which can save you money in the long
run. There may be tax deferral with a marital trust but
expenses of administration and tax liabilities are usually
the same. Frequently there are higher costs with a trust
because something was not in the trust or there is another
problem with the document after death.

Martha Matthews, EA

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Me wrote:

- quote -

Well, it depends on the trust instrument. What is normally
promoted as a "living trust" falls under the grantor trust
rules and the exception from having to file annual returns
during the grantor's life. But without reading the trust
document itself no one can tell you "for sure" that there
isn't a 1041 filing requirement and, potentially, even a
possible taxable entity (the latter is unlikely, but if the
drafting got fouled up enough it's possible--as well as
creating a number of other nontax problems, like being
unable to get the property back out <grin> ).

Whether a living trust "makes sense" or not depends on a lot
of factors--but I would point out that generally they do
require that you make sure assets remain properly titled.
In Arizona, attorneys routinely use living trusts as their
principal estate planning vehicles and work with clients to
get assets transferred. But that doesn't mean they stay
there <grin> .

Just this past year I ran into a case where we discovered
that a taxpayer's residence was removed from the trust about
a year after the trust was funded when they refinanced their
mortgage. Turns out the bank that issued the new mortgage
managed to include a quit claim dead putting the property
back in the individual's name as part of the
paperwork--which, of course, the client dutifully signed
during the "sign this" stack of paper routine. I suspect
the bank did it just because it was "simpler" for them
and/or the officer working with them was simply clueless
about living trusts <grin> .

The problem was discovered years later, and the bank they
are now with (they had refinanced again since then) had no
problem with them moving it back to the trust. But had that
not been "caught" there would have been a rather large asset
that would have been outside the trust and gone through
probate anyway--which arguably would be the worst of both
worlds (they incurred the expense of care and feeding of the
trust while alive, and at death still had to pay for a
probate since their major asset was held outside the trust).

--
Ed Zollars, CPA
Phoenix, Arizona

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If you create a living trust and implement, then during your
lifetime, you simply file your 1040 and 540 as usual. It is
only on your demise, that there will possibly be a different
tax form filing.

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hlpme2004[at]hotmail.com (Me) wrote:

- quote -

No difference. A revocable living trust of the usual sort is
a kind of grantor trust, and it's disregarded for income tax
purposes. Investment income and losses in property held by
the trust are your income and losses.

The only reason to have a living trust is to avoid probate.
These are popular in California, because probate is
expensive and time-consuming.

The two disadvantages of a living trust, which may not
matter to you, are (1) the cost and effort needed to set up
and maintain the trust, and (2) the possibility that your
successor trustee will not be trustworthy. A living trust
can be pillaged by a dishonest trustee much faster than a
probate estate can be.

- quote -

No. Grantor trusts don't file their own tax returns. Other
kinds of trust do, but you don't want to go there.

- quote -

Doesn't change anything. If you did have or were
contemplating a trust of a sort that required a trust
return, then it would be a Really Good Idea to get
professional assistance.

- quote -

No change.

- quote -

Shouldn't be any different.

--
Chris Green

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hlpme2004[at]hotmail.com (Me) posted:

- quote -

No. If you establish a revocable living trust, which might
be titled "hlpme2004 Trust, established U/A/D 9-30-04" (and
your trustees noted thereafter), the income generated by
that Trust can be reported on your regular return. If
you're married, and your wife establishes a separate living
Trust, that can also be reported on your joint return.

It does not _have to be segregated at all. As long as
you're [both] alive, you will receive 1099s for the Trust
income with your SSNs, and the IRS will have no problems.
[Actually, both my wife and I have living trusts, and I note
income on Schedule B as coming from the "A" Trust or "B"
Trust ... but that just matches it up with the SSN, anyway.]

- quote -

No, as noted above, there's no complication necessary --
until one dies, at which point the successor trustee will
have to obtain a Tax Identification Number for the
"Irrevocable" Trust ... at which point they might want to
seek some professional guidance. But if you're dead, that's
not going to be your problem. <G
- quote -

Should not be any problem. State returns which are tied to
the Federal return, should be filled out as usual -- since
all income will be related to your same SSN.

Bill

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hlpme2004[at]hotmail.com (Me) wrote:

- quote -

Not at all.

- quote -

The living trust, like other grantor, revocable trusts, is a
disregarded entity for tax reporting. All income and losses
within the "trust" are reported on your 1040 return, just as
if they were titled in your name. The trust does not have a
separate tax number.

- quote -

You should be able to do it yourself, there are no extra forms needed.

- quote -

That was obvious from your questions.

- quote -

Talk to a CA tax professional, but I don't see that the
living trust should affect your state tax return at all.

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hlpme2004[at]hotmail.com (Me) wrote:

- quote -

A living trust is a "pass-through entity" and specifically
does not require a form 1041 nor K-1s (see IRS Publication
550). Leave your SS# the same on your investments; change
the name to the trust name on all investments and property;
continue to report on form 1040 and 540 as before.

ed

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hlpme2004[at]hotmail.com (Me) writes:

- quote -

Not at all. The trust is ignored for income tax purposes,
and the income continues to be reported under your SSN.

Phil Marti
Clarksburg, MD

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Me wrote:

- quote -

It shouldn't. While you are alive, your revocable living
trust is completely transparent for tax purposes.

- quote -

Not if it's revocable.

- quote -

Not if it's revocable.

Stu

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