Revocable trust becomes irrevocable upon death

[DexEA]

If a trust is set up as "Madam X Trustee, Madam X Revocable Living Trust dated 06/30/00" and Madam X dies, upon the death of MX all assets placed in the original revocable trust are now inherited by the trust, so at this point would the trust obtain a FEIN and now it becomes an irrevocable trust with all assets in the trust now valued, or retaining the basis of the FMV as of the date of death of MX?

[Burke]

RLT's are disregarded entities while grantor is alive, so assets get stepped-up basis at DOD within the trust.

[DexEA]

Wow - quick on the draw there Burke

One of the assets in the trust is the home, which will be sold, but up until the sale can all expenses of maintaing the home such as utilities, fees, and property taxes be expensed?

[AJsTax]

Yes

Those are administrative expenses for the preservation of a trust asset.

[taxea]

is there a successor trustee? Have you read the trust? It should detail the answers to your questions.

[Snaggletooth]

Actually Burke is pretty quick

One of the assets in the trust is the home, which will be sold, but up until the sale can all expenses of maintaing the home such as utilities, fees, and property taxes be expensed?

Quick...and knowledgeable too. I have highly regarded the advice of Burke, who has enlightened me several times.

But in all honesty, there is no transfer of property for tax purposes for a revocable trust. Concepts such as "completed gift", "loss of stepped-up basis" etc. fall within the definition of what constitutes a gift. Today's lawyers have an arsenal of legal vehicles designed for various protection purposes but none of the resulting entities amount to anything with the IRS unless the transfer of property is complete.

[DexEA]

is there a successor trustee?

Yes

Have you read the trust?

Yes

It should detail the answers to your questions.

It does not answer my questions.
It does not state the trust becomes irrevocable upon death.
It does not state that all assets in the trust will now be valued or retain the basis of the FMV as of the date of death of Madam X.
It does not tell me all expenses of maintaing the home such as utilities, fees, and property taxes can be expensed.

I did research but was looking for some confirmation, so based on your knowledge and experience what do you think, does the lawyer drafting the trust normally include these details in the trust document?

[DexEA]

Quick...and knowledgeable too.

100% in agreement!

[DMICPA]

Trust and I.D. Number

I have seen situations where, if the property is distributed quickly, and there is no income requirement, there does not need a Federal I.D. number to be applied as there will be no filing.


My last parent just passed away and as Trustee, I am distributing the assets between my siblings and we all signed an agreement that if there are any unforseeable bills, we all will pay our share.
No need for a 1041.

[Bees Knees]

If a trust is set up as "Madam X Trustee, Madam X Revocable Living Trust dated 06/30/00" and Madam X dies, upon the death of MX all assets placed in the original revocable trust are now inherited by the trust, so at this point would the trust obtain a FEIN and now it becomes an irrevocable trust with all assets in the trust now valued, or retaining the basis of the FMV as of the date of death of MX?

You might find this info from TheTaxBook helpful:

TTB page 21-7:

Revocable Trusts at Death

Year of death. Income received before death is reported under
grantor trust rules—usually on the decedent’s Form 1040. Revocable
trusts with one grantor become irrevocable at the grantor’s
death. The trust is then no longer considered a grantor trust. The
trust must obtain a tax ID number and begin filing fiduciary returns
to report after-death income. Form 1041 must be filed for
the calendar year of death unless an election is made to treat
the trust as part of the estate. All qualified revocable trusts must
obtain a new tax ID number following the death of the grantor.

Election to treat a revocable trust as part of an estate (Reg.
§1.645-1). The election can be made for a qualified revocable trust
(QRT). A QRT is a trust, or portion of a trust, treated as owned
by a decedent because the decedent had the power to revoke the
trust on the date of death.

File Form 8855, Election to Treat a Qualified Revocable Trust as Part of
an Estate, to make the election. The trust is treated as part of the
estate from the date of death until the assets of the estate and trust
are distributed or until the day before the second anniversary of
death, whichever is earlier. If Form 706 is required, the election
period may be longer. See Form 8855 instructions.

[Acownt4it]

Sec 645 election

Under what circumstances would you make the Section 645 election? What are the advantages or disadvantages to it?

[Burke]

It does not state the trust becomes irrevocable upon death.
It does not state that all assets in the trust will now be valued or retain the basis of the FMV as of the date of death of Madam X.
It does not tell me all expenses of maintaing the home such as utilities, fees, and property taxes can be expensed.

I did research but was looking for some confirmation, so based on your knowledge and experience what do you think, does the lawyer drafting the trust normally include these details in the trust document?

No, the lawyer would not include these details in the trust document. These are all tax issues and are controlled by the IRC. (Which can be changed at any time as we all are aware.)

[Burke]

Under what circumstances would you make the Section 645 election? What are the advantages or disadvantages to it?

Under the circumstances described in the post by DMICPA in this thread. Where all assets are going to be disbursed immediately to the beneficiaries, the trust may wish to elect to be treated as if in the estate. Eliminates the need for a trust FEIN and/or an income tax return for both entities. All taxable income can be reported on the estate income tax return, (if it exceeds $600.) That is a bigger exemption than a trust gets. The election is made on the 1041 for the estate when it is filed. Until transfer or distribution is made, there may be income that requires a return to be filed. Apparently, as in a lot of cases, this trust was set up only to avoid probate, not continue on for the benefit of the heirs.