Revocable Inter Vivos Trusts (Portfolio 860)

Description

The Bloomberg Tax Portfolio, Revocable Inter Vivos Trusts, No. 860, describes and analyzes the creation and use of revocable trusts for various estate planning benefits.

Revocable trusts are used for many reasons. A revocable trust can provide management of the grantor’s property, afford protection of the grantor’s assets from the claims of creditors or family members, serve as a will substitute (to avoid probate), allow selection of the situs of the administration of specific trust assets, and enhance estate liquidity. A revocable trust is often used together with a will that adds the grantor’s probate assets to the revocable trust (a “pour-over will”), and is sometimes accompanied by a durable power of attorney that enables a designated family member or other person to fund the revocable trust fully in case of the grantor’s disability.

This Portfolio first addresses the requirements for a valid and effective revocable trust, how and when the trust may be revoked, what constitutes a valid and adequate trust corpus, and when a revocable trust may be expected to achieve significant estate planning benefits. It then addresses the various uses to which a revocable trust may be applied, focusing on when a revocable trust will be the most appropriate vehicle to accomplish each purpose. The Portfolio then addresses the income and wealth transfer tax issues raised by the use of a revocable trust, including when a revocable trust must obtain a taxpayer identification number and file federal income tax returns, when a revocable trust will be treated as an independent entity for income or wealth transfer tax purposes, the effect of holding stock options or subchapter S stock in a revocable trust, and how and when to elect to have a revocable trust treated as part of a decedent’s estate for federal income tax purposes.

For a discussion of the income taxation of grantor trusts and trusts in general, see 819T.M., Grantor Trusts: Income Taxation Under Subpart E, and 852 T.M., Income Taxation of Trusts and Estates, respectively.

This Portfolio may be cited as Zaritsky, 860 T.M., Revocable Inter Vivos Trusts.

Table of Contents

I. Introduction
II. Structural Issues
III. Special Nontax Considerations for Revocable Trusts
IV. Nontax Uses of Revocable Trusts
V. Tax Considerations During the Settlor’s Lifetime
VI. Tax Considerations After the Settlor’s Death