Off topic/Living Trust Question

[LizaLou1]

Dear Soc,

My grandmother has a living trust naming me as trustee for after her death.  The trust does not have a separate tax ID, its uses her SSN.  Currently everything is "owned" by the trust except some stock which is still in her name individually.  The trust plans for the stock.  I am also the exectuor of her estate and her will does NOT speak to the stock -- I think because its supposed to be covered in the trust.


1.  What are the possible impacts due to the stock being outside the trust?

2.  Does the trust need to "own" everything before her death to be part of the trust later?

3.  If it's outside the trust, does that mean I have to pay taxes on it?


Thanks a Bunch,

Lizalou

[socrateaser]

>>1.  What are the possible impacts due to the stock being
>outside the trust?

The stock will fall under the jurisdiction of the probate court, unless you arrange for it to become part of the trust.

>
>2.  Does the trust need to "own" everything before her death
>to be part of the trust later?

Yep.

>
>3.  If it's outside the trust, does that mean I have to pay
>taxes on it?

A "living" trust (legal name: "revocable") is subject to the same tax liabilities as any other part of a person's estate. The IRS doesn't easily let people use legal formalities to avoid paying taxes.

The purpose of a living trust is that it avoids probate, because the contents of the trust immediately passes to the beneficiary, outside of any will or state intestacy statutes. And, a revocable trust is, well, revocable, meaning that the trustor (grandma) can terminate the trust and take all the assets back into her sole ownership at any time.

Originally, it was intended to avoid income taxes, but the gov. plugged that loophole in a hurry. There IS a trust that can avoid taxes, called an "irrevocable" trust, but that means that the trustee becomes the trustor would forever lose control of the management of the trust assets.

People who have huge inheritances sometimes use this sort of trust to give them lifetime income, without any tax liability for taxes generated by the assets within the umbrella of the trust, but for the average person, an irrevocable trust is not very useful.

[LizaLou1]

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