Revocable Living Trust - Normally receive a basis adjustment upon grantors death

  • Created during grantor’s lifetime

  • Can be revoked while the grantor is alive

  • Income is taxed to the grantor

  • Becomes irrevocable upon death

  • Assets not subject to probate

  • Trustee will transfer assets to beneficiaries per trust document or using his/her own discretion (if applicable)

  • Included in grantor’s estate – assets get a § 1014 basis adjustment

Irrevocable Trust - Generally does not receive a basis adjustment upon grantors death*

  • Can be created by either a lifetime transfer or a testamentary trust

  • Testamentary transfers may get a § 1014 basis adjustment*

  • Income is taxed to the trust unless distributed within 65 days following the close of the taxable year under IRC § 663(b)

  • Generally, the terms of the trust can’t be changed

  • Exceptions apply if the grantor has a general power of appointment under IRC § 2041 or a retained life estate under § 2036

Trustee

  • Fiduciary – owes a special duty to beneficiaries

  • Recordkeeping – maintain complete records

  • Exercise reasonable care and skill

  • Prudently invest assets

  • Execute the terms of the trust or exercise discretion if/when applicable

  • No § 1014 basis adjustment upon death