What taxes will revocable trust beneficiaries typically have to pay upon distribution? Well, the whole point of a revocable trust is that the grantor, who funded the trust, is still technically the owner of the assets. Any income generated under the trust is taxable back to the grantor, not the beneficiary. This is called a grantor trust. - When someone dies and the trust becomes irrevocable, it is no longer a grantor trust. The assets are now distributed to the beneficiaries, who will pay taxes on the income they receive. If the trust does not distribute anything, the trust itself may have to pay taxes. Some trusts are required to distribute their earnings, even if they haven't distributed to the beneficiaries. This is known as a simple trust. - However, capital gains in an irrevocable trust remain with the trust until they are distributed to the beneficiaries. The trust will continue to pay taxes on these gains until distribution occurs. - In summary, if you want to avoid paying taxes at the trust level, distribute the assets to the beneficiaries. If the trust is revocable and you, as the grantor, give money to the beneficiaries, it is considered a gift and you would be responsible for the taxes. The beneficiaries would not owe any taxes on receiving the gift.
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Video instructions and help with filling out and completing Which Form 8854 Irrevocable
