Irrevocable Trust

[Snaggletooth]

At what point does the IRS recognize a trust as being a legitimate entity?

Many of the so-called "trusts" governed by state law are ignored by IRS. The
"living" trust, and other vehicles where title to the property passes to heirs but
control and the right to the resident remains vested in the maker is an example.

What about an "irrevocable" trust where not only TITLE but CONTROL is also
given up? Irrevocable meaning these things cannot revert back to the maker.

[JON]

Irrevocable

trusts start filing immediately if income over the mininum ($600 or $300).

[Koss]

Type of Trust

Trusts that are ignored, or treated as a disregarded entity, are grantor trusts.

If the grantor really has given up all control and beneficial interest, and it really is totally irrevocable, then you probably have a trust that is an independent entity, that has to get an EIN and file its own return. The responsibility for filing the return, and signing the return, falls on the trustee--not the grantor or the beneficiaries.

Does your grantor have the right to [i]change the trustee[/i}? If so, then it's not a true irrevocable trust. Is the grantor's spouse the trustee or a beneficiary? If so, then it may still be a grantor trust.

BMK

[ttbtaxes]

Two questions about an intentionally-defective grantor trust:

1) What's the penalty for not filing an information Form 1041 if the grantor has reported the income on his or her personal return?

2) If the only asset is/are rental property does the 1041 file and report the activity?

[Burke]

Not exactly sure what you mean by an "intentionally-defective" trust. If this is an RLT and grantor has filed on his 1040 return, there should be no problem. That is the way it is supposed to be done, whether it is rental property or anything else. If it is not an RLT, but an irrevocable trust (many different kinds here), the reporting is on a 1041. The income may pass through to the bene if it is set up to do so in the trust document, but be aware a trust cannot take a passive rental loss (like an individual or estate can up to $25,000, etc.)

[Gary2]

A web search for intentionally defective grantor trust will turn up numerous explanations. But the basic idea is to exploit an inconsistency between estate and income tax definitions, so that it's irrevocable for estate tax purposes but a grantor trust for income tax purposes.

[ttbtaxes]

That's exactly right. An IDGT (Intentionally Defective Grantor Trust) is a type of trust that is treated as owned by the grantor for income tax purposes but is treated as owned by someone other than the grantor for estate tax purposes.

[JON]

Defective

means it may (per the attorney) miss the estate.. I always get nervous when I am in one of those meetings where they say that with such confidence and I cannot hide my puzzled look.

[Burke]

I would have the same reservations. Any court cases to cite on this issue?