The taxation of family trusts can be complex. This can protect the assets from lawsuits and creditors. The assets are placed in the trust's name and are no longer owned by the grantor. This means they aren't protected from lawsuits or lenders.Īn irrevocable trust generally doesn't allow the grantor to make many changes after it is established. The assets in a revocable trust are still essentially owned and controlled by the grantor. TurboTax Tip: If a taxable estate value is $12,060,000 or less (tax year 2022), the estate doesn't have to pay the estate tax upon the death of the estate owner.Ī revocable trust allows the grantor to make changes to it after it is put into effect. Family trusts can come in different types, such as revocable and irrevocable trusts. It isn't a specific type of trust beyond defining who the assets go to. Family trustsĪ family trust is a trust typically used to pass assets on to family members rather than other people. Wills are also overseen by the courts through probate while certain trusts may not go through probate if you establish them properly. A trust can be used to pass on assets at any time while a will only takes effect after you die. Many people confuse trusts and wills, but they are very different. This often occurs after you pass away, but trusts can distribute assets at any time. These are the people or entities that will receive the assets held within the trust at some point in the future. The trust document also names beneficiaries. The trustee is the person responsible for managing the trust and distributing its assets according to the trust document. The details of what assets are included in the trust and how the trust will be managed are put into a trust document. Common assets that are put into a trust by a grantor may include: When you create the trust, you're called the grantor. What is a basic trust?Ī trust is a financial planning tool used to manage assets. Let's gather an understanding of how a trust works. The details vary based on the specific trust and how it is set up. While each family trust is different, they all generally come with tax liabilities for either beneficiaries or grantors. Beneficiaries input information from Form K-1 into their personal tax returns. Income distributed to beneficiaries is reported to the beneficiaries on Form K-1.With a non-grantor trust, the trust itself or its beneficiaries pay tax on taxable income.With a grantor trust, the grantor has control over the assets and generally reports all income from the trust on their own individual tax return.A trust is created by a grantor to pass on assets to beneficiaries upon the grantor’s death or at any time before, depending on the terms of the trust document.
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