Maximizing benefits and minimizing liabilities: trust tax planning strategies for tax pros

Tax pros need to know the tax consequences of forming a trust for effective planning, minimizing liabilities and maximizing benefits for beneficiaries. Ignorance can lead to penalties, higher tax burdens and missed savings opportunities, impacting clients’ financial goals and trust effectiveness.

Below, you’ll find a few of the top questions from a recent webinar on the topic and their accompanying answers. If you choose to attend the on-demand version of this webinar, you’ll have access to the full recording and the entire list of Q&As.   

Q: A husband and wife have a revocable living trust; one spouse passes away. Does the trust become irrevocable even if one spouse is still alive?

A: It depends on the trust document. If the decedent’s half of the trust assets goes to the surviving spouse, it should still remain a revocable trust. If it would go to someone else, an irrevocable trust may need to be set up. Always read the trust document.

Q: When an asset is transferred to the trust, is it considered a sale of the asset? Does it go to the trust on the basis of the grantor?

A: No, it is not a sale. Yes, the grantor’s adjusted basis transfers to the trust.

Q: Do the assets in the trust get a stepped-up basis upon the grantor’s passing?

A: It depends on the type of trust. For any step-up to fair market value (FMV) to occur, the grantor has to have complete control of the assets and the assets included in their estate upon death.

Q: Does the name of a revocable trust change when the grantor passes since it is no longer revocable?

A: It depends on what is stated in the trust document. If nothing is stated, the name does not need to be changed.

To learn more about forming a trust, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial at natptax.com/explore.