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Taxes on a revocable living trust

Dear Tax Talk,
I am transferring my stock holding from my individual brokerage account to an account owned by my revocable living trust. Do I have to report any gains made by the account owned by my revocable living trust on my personal income tax return? Do I file a separate tax return on capital gain on my trust? Thanks.
-- Ika

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Dear Ika,
A revocable living trust allows an individual to transfer property at his or her death without having to go through probate proceedings. Since your last will and testament would be a public record in a probate proceeding, a trust affords you certain privacy as to your final wishes. For tax purposes, a revocable living trust is ignored as a separate entity and the income of the trust is reported by you on your individual tax return.

When you open bank or brokerage accounts for the trust, you provide the institution (on Form W-9) your name and Social Security number for purposes of reporting the income of the accounts to the IRS. The account would be titled as, for example, "Ika Jones under trust agreement Ika Jones Living Trust dated Nov. 18, 2005." The trust should not apply for a separate tax identification number, as this will unduly complicate reporting.

When you retitle the property in your individual brokerage account, you need to specify to the broker that you want to transfer the assets of your individual account to that of the trust account. You do not want to sell the assets to fund the trust account, as this will obviously be a taxable event. All future gains and losses of the trust account, including dividend and interest income, will continue to be reported on your individual return as if the trust did not exist for tax purposes. No tax return will be required for the living trust.

Bankrate.com's corrections policy-- Posted: Nov. 18, 2005
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