Hi, Lee Phillips here.
I want to talk about how to end an irrevocable trust
and that's the trust that
is not your standard estate planning trust
that's a trust that you've set up
to handle life insurance
an irrevocable life insurance trust an ILIT
it is a trust that you've set up for your children under
Section 2503 of the IRS code
it is a trust most likely though
that has resulted after Dad dies.
When Dad dies, his living revocable trust becomes irrevocable
and you now are dealing with an irrevocable trust
not a revocable trust.
The trust just changed its nature.
It became its own entity.
You had to get a tax ID number for it.
Now mom and dad they may have a trust where one of them dies
and the other one goes on as a revocable trust
but when they're both dead
dead or when dad's single, he's dead
then it becomes an irrevocable trust.
Or you could have a shelter trust
a marital trust, and a shelter trust,
A/B, remember that sort of stuff?
Lawyers don't count too high
so they have trust A and they have trust B
B is an irrevocable trust.
How do you end a an irrevocable trust?
however you got the irrevocable trust
Well it has its own tax ID number.
That means it's filing a 1041 tax return.
You've been getting K-1s.
There's been this income tax aspect to it.
Now you don't want to ever have the trust collect income
because if it actually pays income taxes
it has to file a tax return, 1041
but we want it to be a zero on the bottom of that
we want it to get rid of all of its income
because the tax rate's horrific
but
when we finally want to end it
all you do is take all the assets out of the trust
and the trust will naturally do this because it says
that the assets are to be divided into four shares
and give them one share, giving each one of the four kids.
So when all the assets have been distributed
the trust doesn't own anything
it files a final tax return
and officially the trust is dead.
So all the assets are taken out of the trust
it files its final tax return
and the trust goes away.
Now your mom and dad's trust
after they die it could go on for years
and years and years.
I'm sure that my children will do the irrevocable trust for years
because it has all kinds of real estate in it
rental real estate
and
so they're just gonna leave the rental real estate in there
and collect the rent I would assume
I don't think they're greedy enough that they're gonna take it all out and sell it next week
why kill the goose that lays the golden eggs, so to speak
but
when it's finally all settled out
then it files a final tax return
and the trust goes away
it ends.
So the end of an irrevocable trust
requires usually a filing of a tax return
and disgorgement or
getting rid of all the assets in the trust.
When those two things are done
not in that order
get rid of the assets and THEN file a final tax return
when it's all wrapped up
then the trust just goes away.
There's no official ceremony that gets rid of the trust.
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