Many people are drawn to trusts after hearing they can provide tax benefits. However, it is critical to understand that the tax benefits of a trust vary depending on the type of trust you create. Revocable trusts, one of the most common types of trusts in California, provide no income or estate tax benefits. If you have questions about trusts with tax advantages, contact Carlsbad trust attorney Andrew Fesler.
Are There Tax Benefits of Revocable Trusts in California?
There are no tax benefits for using revocable trusts in California. Revocable trusts have many useful purposes discussed briefly below, but creating a trust will not lower your tax liability.
Why are There No Tax Benefits for Revocable Trusts in California?
The defining characteristic of a revocable trust is the ability of the grantor (creator of the trust) to revoke or alter the trust at any time. The grantor retains control over the trust assets and the terms of the trust. Because of this, they are considered “disregarded entities” by the IRS. A disregarded entity means that although the revocable trust legally owns the trust property, the IRS treats the grantor as the real owner of the taxable property or income. Basically, revocable trusts are invisible to the IRS.
- Income Tax – All revocable trust income, deductions, and credits are reported on the grantor’s personal income tax return. You do not file a separate income tax return for a revocable trust in California.
- Federal Estate Tax – The value of a decedent’s taxable estate includes the value of property held in a revocable trust.
What are the Benefits of a Revocable Trust in California?
Even though a revocable trust will not reduce your tax liability, there are many reasons to add one to your Carlsbad estate plan. The three main advantages are listed below.
- Avoid probate – At your passing, property held in a revocable trust bypasses probate, reducing time, cost, and stress for your loved ones.
- Plan for incapacity – A revocable trust goes into effect if you become incapacitated. Your successor trustee can step in and manage the trust assets on your behalf.
- Flexibility – Unlike an irrevocable trust, you can change or cancel a revocable trust at any time, allowing you to adapt to life’s changes.
Your Carlsbad Trust Attorney
If you have questions about revocable trusts, contact Carlsbad trust attorney Andrew Fesler. Andrew Fesler is an experienced Carlsbad attorney with over twenty years of experience including extensive knowledge about trusts, and their usefulness in California.
Discuss your goals and needs with attorney Fesler and create an estate plan that is individualized for you. Contact our office today at for a free consultation.