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Question for the Money Doctors

Question submitted on Mar 12, 2014.

Question

Must a tax return be completed for an irrevocable family trust for each year it holds assets, or just a one-time filing to establish its existence?

Answer

If you just set up a family living trust for your estate planning, it is generally not an irrevocable trust until one of the spouses passes away. Accordingly, your trust is a revocable trust that does not need a separate tax filing or federal identification number.

If your trust becomes irrevocable when one of you pass away, that trust will need a federal identification number and tax returns will need to be filed if the income is more than $300. The trust files a Form 1041. Trust tax returns can be complicated so I recommend reviewing this with a tax advisor who is competent with fiduciary taxes to better understand the tax consequences of this.

You can learn more about this by going to www.irs.gov and look at Form 1041 and its instructions.


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