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February 16, 2009

Revocable Trust

Your Guide

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Definition

A  trust, which, by its terms, cannot be modified, amended, or revoked. For tax purposes an irrevocable trust can be treated as a simple, complex, or grantor trust, depending on the powers listed in the trust instrument.

A revocable trust is considered a grantor trust . State law and the trust instrument establish whether a trust is revocable or irrevocable. If the trust instrument is silent on revocability, then most states consider the trust revocable.

A reasonable period of settlement intervenes before a revocable trust that becomes irrevocable is considered a split-interest trust, in two situations:

  1. The trust becomes irrevocable upon the death of the decedent-grantor, or
  2. The trust was created by will, and the trustee is required to distribute all the net assets in trust or free of trust to both charitable and noncharitable beneficiaries.

After the settlement period, the trust is considered a split-interest trust or a charitable trust, whichever applies.

Reasonable period of settlement is that pe­riod reasonably required (or if shorter, actually required) by the trustee of a split-interest trust to perform the ordinary duties of administration necessary for the settle­ment of the trust.  For example, these duties include the collection of assets, the payment of debts, taxes, and distributions, and the determi­nation of the rights of the subsequent beneficia­ries.

Source www.irs.gov

Referring Cite

IRC § 676, State law

Additional Helpful Information

  • The oldest beneficiary  of a revocable  trust (and not the trust itself) can be a designated beneficiary of a retirement plan, if the trust is irrevocable or will, by its terms, become irrevocable upon the death of the participant.
  • The trust must satisfy other requirements to be a qualified trust

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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