Assets that you transfer into the trust become trust property.
A trust is a separate legal entity that holds assets on a grantor’s behalf
Knowing who owns trust property has important tax implications for the person who opened the trust
You can’t usually remove trust property from an irrevocable trust except under narrow circumstances
After the grantor dies, the trustee or successor trustee manages trust property according to the trust agreement
Trust property consists of any assets that the grantor — the trust creator — transferred into the trust during their lifetime, or assets for which the trust was a beneficiary upon the grantor’s death. Trust property can include real estate and personal property, whether tangible belongings or intangible ones, like a bank account or business interests.
Using a trust, which is a separate legal entity from its creator, can help your heirs save time and money after your death — trust assets can avoid probate and pass to beneficiaries outside of court, which makes a trust a key component of an estate plan. Moving assets into a trust may also reduce your tax liability, but that depends on the type of trust you open and whether or not you own the assets. Revocable trust assets are still considered your property, while irrevocable trust property is not.
While the trust holds assets that have been retitled into it, who owns the trust property for tax filing and other legal purposes depends on the type of trust. There are many different types of trusts, but the main categories are revocable and irrevocable.
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With a revocable trust (or grantor trust), the grantor owns the trust property. Even though an asset may have been retitled into the trust's name, the grantor must report any income or capital gains from the trust assets on their income tax return, and if they are sued, creditors may come after the revocable trust property.
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Irrevocable trust property is owned solely by the trust. The grantor has no ownership ties to the assets from a legal and financial standpoint. The trustee files a tax return for the irrevocable trust, which has its own tax identification number; any income tax the trust owes is paid out of the trust, not by the trustee or the grantor. Irrevocable trusts also offer asset protection so trust property can’t be lost in a legal battle against the grantor.
Setting up an irrevocable trust typically requires the help of a legal professional, like an estate attorney. If you don’t set up the irrevocable trust properly, then you may face unintended tax consequences.
After the grantor dies, the trustee distributes property to trust beneficiaries or continues managing the assets according to the trust document. If the grantor was also the trustee, then a successor trustee will take over duties. It’s not uncommon to set up a trust fund or a family trust that continues to exist long after the grantor dies to control a spendthrift beneficiary’s spending or provide steady income for a surviving spouse.
Learn more about spendthrift trusts.
If the trust document does instruct for beneficiaries to receive assets upon the grantor’s death, they can receive without going through the probate process.
Learn more about the distribution of trust assets to beneficiaries.
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Elissa Suh is a personal finance editor at Policygenius in New York City. She has researched and written extensively about finance and insurance since 2019, with an emphasis in esate planning and mortgages. Her writing has been cited by MarketWatch, CNBC, and Betterment.
Elissa has a B.A. in Film Studies from Barnard College.
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