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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29975
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: 2 years ago.
Category: Tax
Expert:  Lev replied 2 years 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 2 years 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 -
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 2 years 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 2 years 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.