Death and taxes. These are two things you can’t avoid in life. While there are ways you can minimize your tax implication, you certainly can’t get the tax man off your back. Virtually everything we touch is taxed, from our income, to the gains made on sales from stocks and property, even down to the assets we receive from an estate. The same can be true of trust funds, both of which have a relationship with death and taxes. But how exactly are these estate tools taxed, and what are they? Read on to find out more about these vehicles, and how they’re reported to the Internal Revenue Service (IRS).
Trust funds are tools used in estate planning and are set up to help accumulate wealth for future generations. When established, a trust fund becomes a legal entity that holds either property or other assets like money, securities, personal belonging—or any combination of these—in the name of a person, people, or group. The trust is managed by a trustee, an independent third-party who has no relationship to the grantor—the person who sets up the trust—or the beneficiary.
Trust funds can be both revocable and irrevocable—the two main types of trusts. A revocable trust, also referred to as a living trust, holds the grantor’s assets which can then be transferred to any beneficiaries the grantor appoints after his or her death. But any changes to the trust can be made while the grantor is still alive. The irrevocable trust, on the other hand, is hard to change, but do avoid any issues with probate.
Trust funds are tools used in estate planning and are set up to help accumulate wealth for future generations. When established, a trust fund becomes a legal entity that holds either property or other assets like money, securities, personal belonging—or any combination of these—in the name of a person, people, or group. The trust is managed by a trustee, an independent third-party who has no relationship to the grantor—the person who sets up the trust—or the beneficiary.