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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28084
Experience:  Taxes, Immigration, Labor Relations
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Do the beneficiaries of my revocable trust have to pay taxes

Customer Question

Do the beneficiaries of my revocable trust have to pay taxes on the money if I dispense it now? I have already paid capital gains tax on the funds.
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.
The revocable living trust is generally classified as grantor's type trust and ignored for tax purposes.A grantor trust is a trust over which the grantor has retained certain interests or control. The grantor trust rules in IRC 671-678 are anti-abuse rules. They prevent the grantor from taking tax advantages from assets that have not left his or her control. The anti-abuse rules treat the grantor as owner of all or a portion of the trust. The grantor is subject to tax on trust income so treated even if he or she does not actually receive the income.Correspondingly - when assets or income are distributed from such trust to beneficiaries who are not the grantor - such transaction is classified as gift and is subject to gift tax law and regulations.
Expert:  Lev replied 1 year ago.
In the US - a gift - is not taxable income for the recipient and the donee does not need to report it to the IRS.
There is no any amount limit.
Please see IRS publication 525 -
http://www.irs.gov/pub/irs-pdf/p525.pdf
Gifts and inheritances. In most cases, property you receive as a gift, bequest, or inheritance is not included in your income. However, if property you receive this way later produces income such as interest, dividends, or rents, that income is taxable to you.
.
The donor is subject of US gift tax regulations.That would be the donor who files form 709 - gift tax return - not recipients of the gift.
The gift tax return is required when the total value of the gift is above $14,000 (for 2015) per person per year.
There will not be any gift taxes unless the lifetime limit of $5,430,000 (adjusted every year for inflation) is reached.
Let me know if that answered your question.
Be sure to ask if you need any help.
Customer: replied 1 year ago.
As the donor ,I have already paid the taxes (as capital gains, 10 years ago) . YOUR ANSWER SAYS THAT I WILL BE TAXED TWICE. Is that correct?
Expert:  Lev replied 1 year ago.
That is not correct interpretation.
I assume - we are talking about income taxes - correct?
YOUR tax liability is determined EVERY year based on taxable income you realized during THAT tax year.
Income realized in the revocable grantor trust is considered YOUR income - and must be included into YOUR tax return in the year that income realized. The revocable grantor trust doesn't pay income tax.
So far - there is NO double taxation.

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