We are thinking about getting a Trust for Estate planning. Not sure if Revocable or Irrevocable yet. I f we have Trust, how do we do taxes, as individual (we file ljoint return), for a Trust (using an EIN I think), or both? Are revocable & irrevocable taxed the same?
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Revocable and Irrevocable trusts are not taxed the same:
The grantor is typically responsible for paying taxes on the trust's income. The trust's income is treated as the grantor's personal income, which simplifies tax reporting. Revocable trusts don't usually offer tax benefits because the assets are still considered part of the grantor's estate.
The tax treatment of irrevocable trusts can be more complex. The trust itself, the beneficiaries, or the grantor may be responsible for paying taxes, depending on the trust's design. Irrevocable trusts can offer tax advantages by removing the assets from the grantor's estate.
Here are some other differences between revocable and irrevocable trusts:
The IRS assigns a separate tax ID number to each irrevocable trust. The grantor reports the property in a revocable trust on their tax forms.
Irrevocable trusts have their own tax brackets, which are more compressed than individual tax brackets.
Irrevocable trusts can deduct certain expenses, like trustee fees and legal fees.
Distributions of income to beneficiaries are usually taxable to the beneficiaries in irrevocable trusts
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