Can a grantor trust be revocable?

A “grantor trust” can, in a given case, be either revocable or irrevocable, although most types of “grantor trusts” involve an irrevocable trust. Certain types of trusts (such, as for example, a revocable trust) are disregarded not only for income tax purposes but also for federal estate and gift tax purposes.

Does a grantor trust get a step up in basis?

At the same time, the IRS has vehemently rejected the theory that grantor trust assets receive a basis step-up at death. Specifically, under section 1015(b), the assets of a grantor trust after death have the same basis, once grantor trust status is turned off, as they had before death.

Do revocable trust assets get a step up in basis?

If the asset was held in a revocable (or living) trust before the owner died, it will likely be eligible for a step-up in cost basis. Financial accounts aren’t the only assets that can be held in trust. A house can be put in trust and other types of real property as well.

The defective grantor trust gets the grantor’s basis in the assets. Furthermore, the asset swapped into the trust is not included in the taxable estate of the owner. By swapping assets, the grantor includes the appreciated asset in his estate, which receives a stepped-up basis for it when he dies.

When does a revocable trust become a nongrantor Trust?

A revocable trust will remain a grantor trust unless or until the grantor renounces the power to revoke, initiates suitable amendments to the trust during his or her lifetime, decants the trust to a nongrantor trust, or dies. Therefore, all income, gains, losses, deductions, and credits are reportable on the grantor’s annual income tax return.

Who is the trustee of a revocable trust?

How Revocable Trusts Work A revocable trust is created when an individual (the grantor) signs a trust agreement naming a person (s), a corporation (trust company or bank) or both as trustee to administer the trust. In many jurisdictions the grantor and the trustee can be the same person.

Can a grantor trust be disregarded for income tax?

Certain types of trusts (such, as for example, a revocable trust) are disregarded not only for income tax purposes but also for federal estate and gift tax purposes. However, most types of grantor trusts are irrevocable trusts that are recognized for federal estate tax and other purposes but not for federal income tax purposes.

How does SEC 645 affect a revocable trust?

To reduce the number of separate income tax returns that may be required after the death of the grantor, the trustee of a former revocable trust and the estate’s executor may consider a Sec. 645 election to treat certain revocable trusts as part of the estate.