A revocable living trust is an arrangement created by a written agreement or declaration during the life of an individual
and can be changed or ended at any time during the individual's life. A revocable living trust is generally created to manage and distribute property
. Many people use this type of trust instead of (or in addition to) a will.
Because this type of trust is revocable, it is treated as a grantor type trust for tax purposes.
A trust is a grantor trust if the grantor retains certain powers or ownership benefits
. This can also apply to only a portion of a trust.
In general, a grantor trust is ignored for income tax purposes and all of the income, deductions
, etc., are treated as belonging directly to the grantor. This also applies to any portion of a trust that is treated as a grantor trust.
The John Doe Trust is a grantor type trust. During the year, the trust sold 100 shares of ABC stock for $1,010 in which it had a basis of $10 and 200 shares of XYZ stock for $10 in which it had a $1,020 basis.
The trust does not report these transactions
on Form 1041
. Instead, a schedule is attached to the Form 1041 showing each stock transaction separately and in the same detail as John Doe (grantor and owner) will need to report these transactions on his Form
and Other Dispositions of Capital Assets
and Schedule D
). The trust does not net the capital gains
and losses, nor does it issue John Doe a Schedule K-1
(Form 1041) showing a $10 long-term capital loss
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