As excited as you are to finally have a Revocable Living Trust in place to protect everyone you love and everything you own, it is only natural to wonder what impact this new estate planning strategy will have during tax season. For example, many of our clients at Leigh Hilton PLLC ask, “Does my Revocable Living Trust need to file a tax return?”

Great question. And typically speaking, no, it does not need a separate tax return. But let us discuss this a bit more.

Why Does a Revocable Living Trust Not Require Its Own Tax Return?

As we have written about before, a Revocable Living Trust is extremely beneficial because it allows you, as the trustee, to continue managing all your affairs and assets while you are still alive. If you pass away or become incapacitated, a successor trustee steps in for you and sees that your wishes are carried out — all without the need to go to court. 

Everyone’s estate planning is a little different. That said, a Living Trust typically does not need a tax return of its own, provided that the grantors/creators (you and your spouse, for example) are still alive and in full control of managing the Trust assets.

As a result, it is as if the trust does not exist for tax purposes. You record all income and expenses on your IRS Form 1040.

Here is a simplified example of one scenario where a Revocable Living Trust does not need to file a separate tax return: 

Bob and Lilly established their Revocable Living Trust late last year and immediately “funded” it by listing it as the owner on their bank accounts and other assets. When this tax season came around, both were still alive and in complete control of their Trust assets. Therefore, they filed their “married filing jointly” tax return like normal. Any income earned by the Trust would be reported under Bob’s or Lilly’s social security number.

Granted, different rules come into play once one or both creators pass away or become incapacitated. If this is your situation, it is important to speak with your estate planning attorney as soon as possible about next steps. 

This includes potential tax implications and special tax filing requirements. 

Call Leigh Hilton PLLC Today!!

Call Leigh Hilton PLLC and we will help determine the right course of action for your unique estate planning needs. We have experience using a variety of legal instruments and will take into consideration your particular situation. Proper planning of an estate, whether through a Will, Trust, or both, helps ensure your wishes are honored.

Leigh Hilton PLLC wants to be your first call every time for any estate planning need. We look forward to serving you.