Trusts & Taxes: FAQs about Tax Obligations for Trusts & Trustees

July 15, 2016 Posted In Estate Taxes,Trust Administration,Trusts
by Colorado Estate Matters

Trusts & Taxes: FAQs

Trusts & Taxes: FAQs

Taxation for trusts can be complicated, as there are special rules in place for filing and paying for trust-related taxes (as opposed to personal or business taxes).

Understanding the obligations and requirements for the taxes related to trusts is important to properly managing and administering trusts and to avoiding future complications, like problems with the IRS or allegations of breaching your fiduciary duties.

Revealing more about these tax obligations, the following presents some important answers to frequently asked questions about trusts and taxes. Although the answers provided herein are general, you can easily receive answers and info specific to your circumstances by contacting a Denver estate attorney at Colorado Estate Matters, Ltd.

Important Answers about Taxes for Trusts

Q – I have set up a revocable living trust. Do I have to pay taxes on this trust?

A – Yes. In fact, if you will maintain control of this trust during your lifetime, the IRS views any property held by this trust to still be under your ownership. Consequently, you will still be obligated to pay taxes on the assets and/or property held by the revocable trust, with the same obligations applying as those that would come into play had the property not been transferred into the trust.

Here, it is also important to note that any income received by the living trust will also be subject to taxes.

Q – What if the trustee of my living trust is someone other than me?

A – In these situations:

  • It will usually be necessary for the trustee to obtain an EIN (employer identification number) for the purposes of paying state and federal taxes.
  • Both income to and payouts from the trust will need to be reported to authorities on an annual basis (at minimum). Different forms may be need for this reporting.
  • The specific tax rates that apply will depend on the scope of the trust’s holdings (i.e., the value of and/or income to the trust).

It is strongly recommended that you consult with a lawyer (and potentially an accountant) when dealing with tax issues for living trusts that you did not create (and that you manage). There are a lot of factors to consider and take care of, and you can be held personally liable for any mistakes you make in the process.

Q – What are the tax requirements for irrevocable trusts?

A – Similar to the above, taxes issues for irrevocable trusts are complex, and the specific obligations will depend on the details of the trust (i.e., how it has been set up, the holdings of the trust, and the distributions from/income to the trust).

Again, an attorney can provide you with more details about your specific obligations after reviewing the details of the trust.

Trusts & Taxes: The Bottom Line

When it comes to satisfying the tax obligations for trusts, the bottom line is that it is best to be safe and retain professional help to ensure that you are fully compliant in filing and paying all trust-related taxes.

In general, the trust will cover the expenses associated with hiring professionals to help you deal with this aspect of administering trusts and cutting corners can result in stressful, costly headaches (if not more serious legal issues) in the future.

Get More Answers Now: Contact a Denver Estate Attorney at Colorado Estate Matters, Ltd.

For more answers about trust-related tax issues or any aspect of estate planning and probate in Colorado, contact an experienced Denver estate attorney at Colorado Estate Matters, Ltd.

Our lawyers provide a thoughtful, comprehensive approach to our clients’ estate planning and probate needs, and we take pride in helping each of our clients and their families find the best solutions for them. Our goals is to help you make the right plans and take the right actions to protect you, your family and your legacy, regardless of what the future may hold.

Contact Us

We can discuss your estate planning needs and different options during our consultation. To schedule this meeting, call us at (303) 713-9147 or email us using the contact form at the top of this page.

From our offices in Denver, we serve clients throughout the southwest and southeast Metro Area, including (but not limited to) people in Highlands Ranch, Littleton, Castle Rock, Parker, Aurora, Greenwood Village, Englewood, Centennial, Wheat Ridge, Golden and Arvada.


1: IRS information on taxes for trusts

Schedule your free consultation

  • This field is for validation purposes and should be left unchanged.
  • This field is for validation purposes and should be left unchanged.