Trusts can do various things, and this estate planning tool can in some cases allow Missouri residents to leave someone else assets or property without the estate having to go through the probate process after passing away. While there are tax benefits associated with trusts, figuring out the consequences can be complicated.
While the situation and type of trust one has can lead to different outcomes, irrevocable trusts generally distribute the income generated by the trust to a beneficiary. This usually results in a tax deduction for the trust while the beneficiary pays taxes on the distribution. More money than a trust’s income may go to a beneficiary with complex trusts that allow for distributing the trust principal amount or accumulation of income.
The grantor of a revocable trust includes the trust’s income on his or her tax returns. Irrevocable trusts can take deductions to reduce taxable income as income generated by this kind of trust results in a potential tax liability for the trust. The beneficiary does pay income tax when getting a distribution. Even if taxation for trusts seems confusing, most trusts are designed to make the distribution process simple.
An irrevocable trust can be an advantageous estate planning tool for a variety of reasons. In addition to avoiding a potentially lengthy and costly probate process when the grantor dies, trusts can be structured to accomplish different goals. As opposed to a will inheritance, where the proceeds are distributed to an heir all at once, a trust can specify that distributions will be made to beneficiaries only at specified intervals or upon the achievement of certain milestones. An estate planning attorney can suggest certain other types of documents based upon a client’s particular goals.