Note: This is a complicated subject. We will only
touch on some topics. We recommend that you talk these issues over
with an attorney and a CPA.
How can a trust save on
How can trusts reduce probate costs?
How can I tell if my tax
person knows how to prepare a trust or estate income tax return?
Do I need 3 trust documents? One to reduce probate costs and two to reduce
found a trust on the Internet. Can I use it instead of going to an
CPA write a will or trust for me?
How can a CPA help me
with a trust?
How can a
trust save on income taxes?
This is a major point of confusion. Trusts rarely
save on income tax. The tax on $50,000 of trust income is much higher
than the tax on $50,000 of an individual's income. So why are trusts
used? Certain trusts can save on probate costs. Probate comes
into play when a person dies. Some trusts can reduce estate taxes
(death taxes). Other trusts can keep beneficiaries from burning
through money too fast.
How can a trust reduce probate costs?
Certain types of trusts, revocable
living trusts, can be used to avoid probate. When someone dies, the
legal and other fees associated with probate can be substantial.
Generally, assets in revocable living trusts stay out of probate. One
has to compare the potential probate costs against the cost of having an
attorney draft a trust. If you are young and healthy, you probably
don't need such a trust. However, if you own property in other states,
you could be facing probate in all of those states. Thus, if you have
significant property in other states, seriously consider a revocable trust.
If you are older and have significant assets that should go to relatives
instead of attorneys, consider a revocable trust.
need 3 trust documents? One to reduce probate costs and two to reduce death
No. One document can be used as the revocable trust to avoid
probate. The same document can be used to take maximum advantage of estate
I found a
trust on the Internet. Can I use it instead of going to an attorney?
I do not advise using a "canned trust". Trusts are
typically governed by state law. A perfectly good trust for someone in
California might have some problems for someone in Colorado.
Can a CPA
write a will or trust for me?
Only attorneys should draft trusts. A CPA, who isn't
also an attorney, could get in hot water by drawing up a trust for a client.
Any CPA, who isn't an attorney, that is willing to get himself in trouble by
practicing law is most likely to get you in trouble also! If you need some names
of lawyers that draft trusts, do not hesitate to contact us. You don't want an
attorney that rarely drafts trusts to draft your trust!
On the other hand, you don't want an attorney preparing a
trust or estate income tax return (Form 1041). Attorneys usually charge much
more for preparing tax returns than CPAs. If you do use a CPA, make sure
he or she has lots of experience in this area.
How can a CPA help me
with a trust?
A CPA can prepare trust income tax returns. A CPA can
review trust document for tax consequences. A CPA can prepare tax returns
for taxpayers that are beneficiaries of trusts. In most cases, a CPA will
prepare these returns for much less than what lawyers charge!
The information contained here are simplifications of complex subjects.
Trusts can do much more than what is discussed here. Talk to your CPA and
attorney if you want to pursue a trust.
If you have questions about this, do not hesitate to contact us
at 720-493-4804. We serve clients all
over the country. A large portion of my business is preparing tax returns
and tax planning for trusts, estates and beneficiaries of trusts and estates.
US Estate Income Tax Return
US Estate Income Tax Return Instructions
Colorado Estate Income Tax Return