Irrevocable Trust Filing Requirements

An irrevocable trust can be a useful and important estate plan, depending on the particular assets and financial situation of the individual considering creating one (the grantor). Irrevocable trusts can be structured to help postpone estate taxes until the other spouse dies (known as a QTIP trust). It can also be used to reduce income taxes through charitable gifts. Irrevocable trusts are complicated legal documents and require maintenance and certain filings.

Formation

Irrevocable trusts require a legally enforceable trust agreement. The trust agreement must contain the specific rules and restrictions governing administration of the trust property and also contain important details about the trust, such as the identity of the trustee and beneficiaries. There must be a specific clause describing the trust as being irrevocable. Once the trust agreement is ready for signature, the parties must sign in the presence of witnesses and the document should be notarized.

Registration Statements

In general, the trust agreement is a private matter. Once the agreement has been signed and executed, there are typically no formal filing requirements. State law may vary, however, and require the trust agreement to be filed with a court or government body. In Colorado, for example, the trustee must file a “trust registration statement” with the court and pay a filing fee. The purpose of these types of regulations are to make it easier to determine what type of estate plan a decedent had – without the registration requirement, it’s incumbent on the trustee to let the beneficiaries know about its existence.

Property Transfer Filings

The trust agreement only creates the shell of the trust itself. Property must then be transferred over to the trust so that it properly funded. Property transfers may require certain formalities. Transferring real estate into the trust, for example, requires a deed to be signed and recorded (filed) with the real estate records office. Prior to transferring any property into the trust, the grantor must keep in mind that once property is transferred over, the trust has complete ownership over the asset; the grantor keeps nothing.

Tax Filings

Trusts are separate, legal entities. Depending on the assets in a trust, the trustee may need to file income tax forms. The trust should register for a taxpayer identification number. As of 2013, if the trust earns $600 or more of income, the trustee must file IRS Form 1040. The tax filings can be complicated; the trustee may need to see the help of an accountant or a tax attorney before proceeding.

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