Q: We recently set up a family trust. Are there any different tax forms needed to file our 2012 taxes? And if so, what are they? Thank you
Phil, Carmichael, CA
Q: Whether you have to file tax forms for your family trust depends on whether the trust is revocable (it can be amended or revoked), or it is irrevocable (can't be changed).
Usually, when spouses create a family trust, the trust is revocable as long as both spouses are alive. If this is the case, the trust does not have to file separate tax returns. The assets of the trust and the related income are treated for tax purposes as if they are owned by the "grantors" of the trust. In essence, the trust is disregarded for tax purposes as long as both grantors are alive.
At the death of the first spouse, the family trust becomes irrevocable. That is at least a portion of the trust can't be amended or revoked. At that point, the trust needs to file its own tax returns, IRS Form 1041 and FTB Form 541.
If you established an irrevocable trust at the outset, then it will have to file its own tax returns as explained above.
If you are not sure whether your trust is revocable or irrevocable, read it to see if there are provisions that allow you to amend or revoke it. It should be stated in the terms of the trust. Or you can check with the attorney who drafted it to tell you if the trust is revocable or not.