Are Assets in a Living Trust Taxable?
One of the many reasons people create living trusts is to maximize their assets’ value by avoiding taxation. However, not all living trusts will protect your assets in these situations, so it is important to understand the differences between a revocable and irrevocable trust.
Below is quick overview of the main categories of living trusts and their ability (or inability) to shield your assets from taxation.
Revocable living trusts
A revocable living trust is a great tool to spare your family from the hassle and expense of the probate process. Any property you place in this type of trust does not require the involvement of the probate court before being passed down to your loved ones, meaning your family members are able to get their inheritance in a relatively quick manner.
Revocable living trusts do not protect your assets from taxation. You are still the owner of those assets, as this type of trust allows you to maintain control of all trust assets throughout your lifetime. You can put property in, take it out, sell it or give it away at any time. Because of this, any income generated from those assets is taxed on your personal income tax return.
Irrevocable living trusts
In an irrevocable trust, you transfer ownership of assets to the trust. Because you are no longer the legal owner of those assets, their value is not taxable to your estate upon your death as long as you are not a trust beneficiary and as long as you or someone you can control is not the trustee of the trust.
To learn more about the various tax implications of living trusts, speak with an experienced Florida estate planning lawyer at BaumannKangas Estate Law.