A qualified revocable trust is a type of trust the grantor uses during his lifespan and then transfers to the designated beneficiaries upon his death. A revocable trust is the opposite of an irrevocable trust, wherein the grantor transfers the trust’s assets to the beneficiary prior to death and has no access or control over them.
Source of Income
A qualified revocable trust is also known as a “revocable living trust.” Its purpose is to place the assets in the trust for estate planning, yet give the grantor – the person who opened and is in charge of the trust – continued access to what’s inside. For example, an elderly person might place all of his financial accounts and tangible personal property into a qualified revocable trust. He will have access to the money in the financial accounts while he is alive for his living expenses, and his children will have access to the accounts and personal property after his death if they are the designated beneficiaries.
Another reason a person might open a qualified revocable trust is to retain control over the assets within the trust. Once the assets are placed in an irrevocable trust, the grantor loses control over them and cannot change his mind. Should he place his assets in a revocable trust, he has the leeway to change the assets physically held in the trust. He can also change the distribution of the assets and the beneficiaries at any time. This leaves the control of the trust in the grantor’s hands, as opposed to the beneficiary’s hands.
Qualified revocable trusts are an estate planning tool that avoids the hassle and expense of probate upon the grantor’s death. Much like a will, the assets within the trust are designated to specific beneficiaries, so there should be no question as to who gets what when the grantor dies. Many people choose a qualified revocable trust for this exact reason, to avoid probate and minimize the chance of a dispute over the estate making its way through the court systems and the publicity attached to such an action.
Internal Revenue Code Section 645 Designation
At the time of the grantor’s death, the beneficiaries may elect to file Internal Revenue Service Form 8855 to -- as the form is aptly named -- “elect to treat a qualified revocable trust as part of an estate.” This accomplishes a few tax benefits. The trust becomes a part of the decedent’s overall estate and is taxed along with it on one tax return. This allows the taxes to be reported on a fiscal year basis, rather than a calendar year, giving more time to prepare for the impending taxes. It also affords the revocable trust any charitable tax deductions as applicable to donations established within the trust that have not yet been paid. Should the decedent have an existing estate outside of his qualified revocable trust, the trust’s beneficiary and the estate representative may elect to combine the two units into one to handle any federal income tax obligations all at once.
- Nolo: Revocable Living Trusts
- Nolo: Irrevocable Living Trusts
- Fiduciary Trust International: Trusts & Estates Magazine: As the Hearse Pulls Away… ; Michael M. Mariani
- Cornell University Law School Legal Information Institute: 26 USC § 645 - Certain Revocable Trusts Treated as Part of Estate
- Internal Revenue Service: Form 8855 – Election to Treat a Qualified Revocable Trust as Part of an Estate
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