Joint Revocable Trust

[Gretel]

What happens upon first to die with a joint revocable trust? I assume the trust becomes irrevocable and assets either need to be distributed or spouse needs to file a 1041 until this happens. The trust document does not stipulate setting up new trusts or how assets should be distributed, only that spouse can make distributions of corpus and income and he/she sees fit. If spouse wants to have a revocable trust, it will be a different trust or am I wrong?

[RWG1950]

I'm not an attorney, just speculating here, so don't take what I am posting too seriously. I have wondered about these things too. This is simply how I understand them to be.
A joint grantor (revocable) trust with each spouse named as a trustee would likely continue exactly as before - with the surviving spouse as the sole trustee.
Many spouses use one of their SSN's for grantor trust tax reporting, so it would seem likely that if the deceased spouse SSN had been used, it could be changed to be the survivor's.
If a credit shelter trust is involved, however, the sheltered portion is cleaved off into an irrevocable separate trust with it's own tax I.D. # and a yearly 1041 is filed for it, until its ultimate termination.
As I understand it, the main function of a revocable grantor trust seems to be probate avoidance, although such trusts can also serve to offer important structure and restrictions for
successor trustees and the ultimate beneficiaries. (i.e. control from the grave) Hopefully, further posts can clarify.

[Burke]

Get a copy of the trust document to see what it says about this situation and any distributions required to other than the spouse. Other considerations are whether there is an Estate tax in the TP's state and what the FMV of the trust is to determine whether this is triggered for the deceased. If so, the deceased spouse would own/report 1/2 of the joint assets in his/her estate. Another consideration is whether they live in a community property state. The 1/2 of joint assets attributed to the deceased will normally get a stepped up basis for income tax purposes. If the surviving spouse simply keeps the trust in his/her name, which is normally done if the trust does not direct otherwise, this information needs to be determined for future sales of assets. Also, it is possible for separately owned assets to have been transferred to the joint trust originally.

[Gretel]

Thanks, I already learned quite a bit. I only have encountered trusts in the past that become irrevocable at death. Yes, the trust document should spell it all out, I only had a chance to glance at it and then the potential client took it back. I most certainly want to be better prepared if she returns or for a future client. What I wasn't aware of is that step up basis in not effected by trust ownership and follows the same rules as if assets were owned outside of trust. No Estate tax issues apply

[Burke]

. What I wasn't aware of is that step up basis is not affected by trust ownership and follows the same rules as if assets were owned outside of trust.

This is correct in the case of an irrevocable trust, but not true of an Revocable Living Trust (treated as a disregarded entity). Assets in an irrevocable trust are not stepped up, unless it is set up under special rules. Assets in an RLT are stepped up at death of the grantor.

[sherry@sburhahncpa.com]

Ok, so if the step up in basis in not effected what about the date of purchase? Does the trust retain the decedents date of purchase or does it have to use date of death of decedent as purchase date?

[Burke]

Perhaps my last post was unclear and I have edited its content. In your OP you stated this was a joint revocable living trust. Stepped-up basis will be in effect for an RLT for 1/2 of the jointly-held assets allocated to the deceased, and the "purchase" date for basis is the date of death. Original basis will be used for the surviving spouse's jointly-held assets allocated to him/her, and the original purchase date will be used for those.