You, Your Trust and Taxes

We talk a lot about Living Trusts as an important part of estate planning. What we don’t talk about is a Trust and your taxes. But if you’re creating a Trust, thinking about transferring property, or naming a Successor Trustee, taxes are an important consideration. This is about your, your Trust and your taxes.

A Living Trust is typically a Revocable Trust, meaning that the person who’s creating it, the Grantor, may add or remove the Trust’s assets and beneficiaries at any time. The Grantor may even terminate or revoke the Trust at any time. Many people want to know about the tax implications of a Trust before they move forward with creating one.

The Trust is in the Grantor’s name and will be recorded in his taxes

Because the Trust is in the Grantor’s name, he remains entitled to receive the income and the principal of the Trust during his lifetime. As a result, the IRS still taxes the Grantor on the Trust’s income. Because this is still in the Grantor’s name, it uses his social security number to establish investments and bank accounts, so all of the Trust’s income is recorded on the Grantor’s tax return. It is not necessary to have a separate tax return for the Trust because everything is still in one person’s name—the Grantor’s.

Having a Trust means your heirs will avoid Probate

However, while the Grantor is taxed on the Trust income, the Trust’s assets are legally held by the Trust, which will survive the Grantor’s death. For this reason, the assets in the Trust do not need to go through the Probate process when the Grantor dies. This is one of the reasons we encourage everyone to create a Living Trust. You will be sparing your heirs the expense and the time-consuming process of going through Probate.

Special circumstances during Grantor’s life

If the Grantor becomes mentally incapacitated, the Successor Trustee designated in the Trust documents may choose to obtain a separate tax ID number for the Trust. This number is called a “Federal Tax ID Number”, an “Employer Identification Number”, or an “EIN”.

A Successor Trust may choose to obtain an EIN for the Trust in order to limit his own liability for the Trust’s income tax or to help fulfill his fiduciary duties. If the Trust is using an EIN, a separate tax return for the Trust will be required for each year. The Trust’s taxes will be filed on Form 1041 and would be filed by the same date as personal taxes. If it’s a simple estate, this may not be necessary. But even in straightforward situations, it often takes a year or more to settle the estate. There are cases where the Grantor is not incapacitated, and still may choose to establish an EIN for the Trust.

If the Grantor has complex personal taxes and would prefer not to report the income and losses of the Trust on his own tax return. He would still pay taxes on the income of the Trust but he would be paying those taxes under the Trusts EIN number.

In my own case, my parents lived into their 90s, and were active and healthy until the last year or so. We realized that there was some urgency in their signing their Trust, Powers of Attorney, Advance Healthcare Directives and Do Not Resuscitate Orders with their doctors while they still had testamentary capacity. They died within six months of each other, and my brother, the Successor Trustee, stepped up and managed their estate. It was very straightforward, but it still took more than a year to settle our parents’ estate. He established an EIN for the Trust and dealt with endless paperwork and bills that kept trickling in from Social Security, Medicare and miscellaneous providers.

Living Trust tax after Grantor’s death

After the Grantor’s death, the Trust remains in place and continues to hold legal ownership of all the Trust’s assets. If you’re the Successor Trustee, the Trust holds all of the assets that you inherit and you will be responsible for dividing among your family members, as per the Trust. The tax implications impact the outcome of both the Grantor and the beneficiaries.

• The Grantor’s final tax return is filed by the Trustee or Executor of the Grantor’s Estate, and it declares all the income earned by the Grantor through the Grantor’s death.
• However, any income earned by the Trust assets or principal after the date of the Grantor’s death is reported in a separate tax return for the Trust.

After death, the Trust converts from a Revocable to an Irrevocable Trust

The requirement that the Trust files its own tax return is a result of the Trust changing from a Revocable Trust during the Grantor’s life to an Irrevocable Trust upon the Grantor’s death. This makes perfect sense because it was Revocable before death—meaning that the Grantor can revoke, or make changes to the assets and beneficiaries. After death, of course, the Grantor can no longer make changes. The result: The Trust must file its own tax return each year.

What about estate taxes?

Thanks to changes in the estate tax laws, only those estates worth more than $11.4 million will owe federal estate taxes. This leaves most of us out, yet here in the affluent Bay Area, this extends to an increasing number of people.

California Document Preparers assists our clients in the preparation of Living Trusts. Our Living Trust portfolio includes a Power of Attorney and Advance Healthcare Directive. Most of our clients are surprised at how easy it is. Schedule an appointment today by contacting us at one of our three Bay Area offices. Our dedicated team is helpful, compassionate and affordable.

You, Your Trust and Taxes

We talk a lot about Living Trusts as an important part of estate planning. What we don’t talk about is a Trust and your taxes. But if you’re creating a Trust, thinking about transferring property, or naming a Successor Trustee, taxes are an important consideration. This is about your, your Trust and your taxes.

A Living Trust is typically a Revocable Trust, meaning that the person who’s creating it, the Grantor, may add or remove the Trust’s assets and beneficiaries at any time. The Grantor may even terminate or revoke the Trust at any time. Many people want to know about the tax implications of a Trust before they move forward with creating one.

The Trust is in the Grantor’s name and will be recorded in his taxes

Because the Trust is in the Grantor’s name, he remains entitled to receive the income and the principal of the Trust during his lifetime. As a result, the IRS still taxes the Grantor on the Trust’s income. Because this is still in the Grantor’s name, it uses his social security number to establish investments and bank accounts, so all of the Trust’s income is recorded on the Grantor’s tax return. It is not necessary to have a separate tax return for the Trust because everything is still in one person’s name—the Grantor’s.

Having a Trust means your heirs will avoid Probate

However, while the Grantor is taxed on the Trust income, the Trust’s assets are legally held by the Trust, which will survive the Grantor’s death. For this reason, the assets in the Trust do not need to go through the Probate process when the Grantor dies. This is one of the reasons we encourage everyone to create a Living Trust. You will be sparing your heirs the expense and the time-consuming process of going through Probate.

Special circumstances during Grantor’s life

If the Grantor becomes mentally incapacitated, the Successor Trustee designated in the Trust documents may choose to obtain a separate tax ID number for the Trust. This number is called a “Federal Tax ID Number”, an “Employer Identification Number”, or an “EIN”.

A Successor Trust may choose to obtain an EIN for the Trust in order to limit his own liability for the Trust’s income tax or to help fulfill his fiduciary duties. If the Trust is using an EIN, a separate tax return for the Trust will be required for each year. The Trust’s taxes will be filed on Form 1041 and would be filed by the same date as personal taxes. If it’s a simple estate, this may not be necessary. But even in straightforward situations, it often takes a year or more to settle the estate. There are cases where the Grantor is not incapacitated, and still may choose to establish an EIN for the Trust.

If the Grantor has complex personal taxes and would prefer not to report the income and losses of the Trust on his own tax return. He would still pay taxes on the income of the Trust but he would be paying those taxes under the Trusts EIN number.

In my own case, my parents lived into their 90s, and were active and healthy until the last year or so. We realized that there was some urgency in their signing their Trust, Powers of Attorney, Advance Healthcare Directives and Do Not Resuscitate Orders with their doctors while they still had testamentary capacity. They died within six months of each other, and my brother, the Successor Trustee, stepped up and managed their estate. It was very straightforward, but it still took more than a year to settle our parents’ estate. He established an EIN for the Trust and dealt with endless paperwork and bills that kept trickling in from Social Security, Medicare and miscellaneous providers.

Living Trust tax after Grantor’s death

After the Grantor’s death, the Trust remains in place and continues to hold legal ownership of all the Trust’s assets. If you’re the Successor Trustee, the Trust holds all of the assets that you inherit and you will be responsible for dividing among your family members, as per the Trust. The tax implications impact the outcome of both the Grantor and the beneficiaries.

• The Grantor’s final tax return is filed by the Trustee or Executor of the Grantor’s Estate, and it declares all the income earned by the Grantor through the Grantor’s death.
• However, any income earned by the Trust assets or principal after the date of the Grantor’s death is reported in a separate tax return for the Trust.

After death, the Trust converts from a Revocable to an Irrevocable Trust

The requirement that the Trust files its own tax return is a result of the Trust changing from a Revocable Trust during the Grantor’s life to an Irrevocable Trust upon the Grantor’s death. This makes perfect sense because it was Revocable before death—meaning that the Grantor can revoke, or make changes to the assets and beneficiaries. After death, of course, the Grantor can no longer make changes. The result: The Trust must file its own tax return each year.

What about estate taxes?

Thanks to changes in the estate tax laws, only those estates worth more than $11.4 million will owe federal estate taxes. This leaves most of us out, yet here in the affluent Bay Area, this extends to an increasing number of people.

California Document Preparers assists our clients in the preparation of Living Trusts. Our Living Trust portfolio includes a Power of Attorney and Advance Healthcare Directive. Most of our clients are surprised at how easy it is. Schedule an appointment today by contacting us at one of our three Bay Area offices. Our dedicated team is helpful, compassionate and affordable.

Who Will Care for the Caretakers?

Many of us are caring for–or know someone who is caring for–a family member, often an aging parent. With 10,000 baby boomers turning 70 every day, caring for this demographic is a growing health care matter, and it’s only time before it becomes a political issue. Let’s take a look at three women and the impact this has had on their lives.

• Aisha Adkins graduated from college with goals, dreams and a bright future. Ten years later, she’s still living at home. No job or car, no savings or the advanced degree she needs to be competitive in her field. Her mother was diagnosed with early onset dementia and cannot be left alone. For the last decade, Aisha has held the demanding role of caretaker for her mother. Aisha takes care of the house, shops and cooks dinner, then retires to her room around 10pm, when her father gets home. She’s had three dates in three years; she’s completely missing those exciting post-college years when young adults really start to find themselves.
• Heather Oglesby is a project officer for the Centers for Disease Control and Prevention in Atlanta.She was 42 when her mother received a dementia diagnosis four years ago. Caring for her mother has stunted her career prospects and weighed on her marriage. She has taken money from her pension plan and refinanced her home to cover her mother’s expenses. “Caregivers are physically, mentally and financially dying,” she told me. “They are a health care crisis in the making.”
• Heather Boldon dropped her demanding paralegal job nine years ago to take care of her mother. Since then, she has moved in and out of lesser-paying jobs, unable to build financial security. “I’m almost 52, and I’m starting from scratch,” said Ms. Boldon, whose mother has Alzheimer’s disease. “I’ve lost ten years of my life. What’s going to happen to me?”

Aisha and her father understand that her mother will need full-time professional care at some point. But they have no idea how they will pay for it. The Adkinses’ situation may be extreme, stemming from an early onset dementia diagnosis. But even for caregivers who keep a foothold in the labor force, the economic cost can be substantial.

The burden of care is profoundly reshaping lives

Unfortunately, stories about these three women aren’t uncommon. This burden of care is reshaping the lives of millions of Americans. About 15% women and 13% of men 25-54 years old spend time caring for an older relative, according to the Labor Department. For those 55 to 64, the share rises to one in five Americans. Some 20% of these caregivers also have children at home.

Demand for care is growing: Blame it on the boomers

“The boomer generation is living longer than when the safety net was put in place,” said Ai-jen Poo, a co-director of Caring Across Generations, a coalition of advocacy groups. Her organization is pushing to add a benefit to cover care — for older adults, children and sick family members — to the nation’s safety net, alongside Social Security and Medicare.

While men are being forced to step up, Ms. Poo noted that “women, in particular, are bearing the brunt of the burden.” By knocking many women in their prime earning years from the work force, the growing strain from care is weighing down the American economy.

For many, leaving the labor force is not an option

More than 60% of the people caring for an older person work, too; 45% of the caregivers work fulltime. Altogether, American families forgo at least $28.9 billion per year in wages when they take time off to take care of their children or sick relatives, according to a study issued in 2016 by the liberal Center for American Progress.

Burden of care only starting to seep into political conversations

The burden of care has not become a political concern with the urgency of health care policy; it is mostly absent from proposals by candidates for the Democratic presidential nomination. But it is seeping into the conversation. Senator Bernie Sanders’s Medicare for All proposal includes a benefit for long-term care. Senator Elizabeth Warren supports universal child care, which she has proposed to finance with a wealth tax. In 2016, Hillary Clinton made this part of her platform, by giving tax credits to those who were taking care of family members.

Ms. Poo argues that it is only a matter of time before care becomes a political priority. “There is no feasible way in this economy that people can manage care without more institutional support,” she said. It most likely will become a political issue and it will end up being a women’s issue.

Many of our clients are seniors who come in to our offices to create their Living Trusts

The result is numerous conversations on a wide range of topics related to health, healthcare and end-of-life planning. California Document Preparers assists our clients in the preparation of their Trusts, which include a Power of Attorney and Advance Healthcare Directive. Most are surprised at how easy it is. Schedule your appointment today by contacting us at one of our three Bay Area offices. Our dedicated team is helpful, compassionate and affordable.

The Early Days of the Opioid Crisis: How It Might Have Turned Out Differently

An article in The New York Times tells the tragic story of addiction and its effect on a Virginia coal mining town that has already seen its share of hard times. But it’s more than that. It’s about the lawmakers who had a chance to do the right thing to make OxyContin more difficult to get—and didn’t.

Three brothers bought a small pharmaceutical company, Purdue Pharma

The brothers, all doctors, introduced a version of oxycodone that was reformulated into a slow-release format. That drug was, of course, OxyContin, a powerfully addictive painkiller. The opioid crisis has taken more than 400,000 lives. Hundreds of thousands more addicts are trapped in endless struggles between sobriety and addiction. Many lose that struggle.

Now the Sackler family, realizing they can’t sustain the growing barrage of lawsuits, are declaring bankruptcy. There’s speculation that they’ve salted away billions of dollars in offshore accounts. Purdue Pharma has warned a bankruptcy court that the Sackler family members “may be unwilling–or unable” to contribute billions to a $10–$12 billion settlement toward the costs of the opioid crisis if lawsuits against them are allowed to proceed.

Years before there was an opioid epidemic, Sister Beth Davies saw it coming

In the late 1990s, patient after patient addicted to a new prescription painkiller called OxyContin began walking into Sister Beth Davies’ Appalachian substance-abuse clinic. Around the same time, a local physician, Dr. Art Van Zee, sensed that something was going on as well. Teenagers were coming into his clinic, overdosed on the drug. His lawyer wife, Sue Ella Kobak, had yet another perspective on the growing crisis—a growing wave of crime. All had links to OxyContin.

These three people, each with a unique perspective and first-hand experience with the effects of this addictive drug, were among the first in the country to sound an alarm about the misuse of prescription opioids. This was perhaps the beginning of a cycle of addiction. It spread to illegal opioids like heroin and counterfeit versions of fentanyl. This led to activism against Purdue Pharma that the powerful company crushed.

Those who saw the epidemic unfolding see it as a tragedy of missed opportunities

• Van Zee believed the FDA could have rechanneled the drug’s force by forcing Purdue Pharma to reformulate OxyContin so that it was harder to abuse. It took until 2010 for the drugmaker to do this.
• The Justice Department could have changed the behavior of other opioid makers if it had charged executives of Purdue Pharma in 2007 with felonies, in connection with OxyContin’s illegal marketing.
• Instead, department officials negotiated a deal under which the executives pleaded guilty to misdemeanor charges that did not include jail time.
• In the years that followed, executives of other opioid makers and distributors kept shipping millions of addictive pain pills into towns like this one, apparently without fear of serious penalties.

The consequences of OxyContin inaction continue to impact this mining town

“I think the trajectory would have been completely different,” Dr. Van Zee said recently. “It would not have reached the magnitude that it did.” This former mining town of about 1,900, set in the far southwestern corner of Virginia near the border of Kentucky is still suffering the consequences of addiction.

• Van Zee is 72 and gets up at 4am. to take care of paperwork before spending 10- to 12-hour days at a community health clinic. Some of his patients are still addicted to opioids.
• Sister Beth is now 86, and she continues to run her treatment center. She is seeing more people turning to heroin and fentanyl because they’re cheaper. She’s also seeing the return of methamphetamine. “It never ends, the whole cycle, we are still losing people to these drugs.”

Dr. Van Zee: a reluctant activist who trusted pharmaceutical companies

Both Sister Beth and Ms. Kobak had previously taken on fights in this part of Appalachia to protect the rights of workers and the environment. But Dr. Van Zee was an unlikely activist. When OxyContin came on the market in 1996, he prescribed it for his cancer patients to dull their excruciating pain. He was naïve enough to think that a pharmaceutical company wouldn’t market a drug that had such addictive powers.

A Purdue Pharma sales representative told him that OxyContin was safe because it was a long-acting narcotic; it would not appeal to drug abusers who sought a quick high. But users quickly discovered that crushing an OxyContin pill released large quantities of the narcotic oxycodone.

Sister Beth recalls getting a phone call from the local pharmacist as she was starting to see people addicted to the drug. His words: “Believe me, this is going to be the worst disaster that ever hit Lee County.”

Dr. Van Zee began writing Purdue Pharma executives

Dr. Van Zee was urging the company to pull back on how it was marketing the drug. Frustrated by the lack of response, he and others launched a petition drive in 2001 to convince the FDA to take OxyContin off the market until it could be reformulated and made safer.

• Several executives met with Sister Beth, Dr. Van Zee, Ms. Kobak and others at a local motel.
• They listened as the executives tried to convince them to drop the recall petition, and offered $100,000 to help fund addiction treatment in the area.
• One executive showed a new ad campaign that included a warning label.

By the mid-2000s, the people of Pennington Gap were trying to combat a growing opioid epidemic in other ways.

• Van Zee received training that allowed him to prescribe buprenorphine, a medicine that blunts cravings for opioids.
• Sister Beth, Ms. Kobak, Dr. Van Zee and others helped start a local inpatient addiction treatment facility, the only one for many miles.

In 2007 the Justice Department announced criminal indictments against Purdue Pharma and three of its top executives in connection with deceptive marketing of the drug. That July, Sister Beth stood in drizzling rain outside a federal courthouse in Abingdon, VA, disappointed about the outcome of the case.

A judge had approved a deal struck between the Justice Department and the three Purdue executives. Under it, the men were allowed to plead guilty to a single misdemeanor charge that did not accuse them of personal wrongdoing and for which they would not face jail. “I think it would have made a considerable difference if these people had been arrested and done jail time,” she said. This was a slap on the hand.

Twenty years later, the problems of the opioid epidemic continue to plague this town

Drugs tainted by counterfeit fentanyl are now sold on the streets. Many of the town’s population are meth addicts, prone to flying into psychotic rages. The inpatient treatment facility was forced to close after for lack of funding. Government funding was woefully short of what was necessary for people to get the help they needed. Virginia’s decision last year to expand Medicaid, which has paid for treatment of many low-income people in other expansion states, may have helped, along with an injection of federal grant money to states for addiction treatment and prevention.

Sister Beth, Dr. Van Zee and Ms. Kobak: Watching the legal problems of Purdue Pharma

Earlier this year, Dr. Van Zee and Ms. Kobak flew to Oklahoma so the physician could testify as an expert witness in that state’s lawsuit against the drugmaker. But that never happened. In March, Purdue Pharma agreed to pay $270 million to settle. As a result, all its internal documents remain sealed. Oklahoma state officials said they struck the deal because of concerns that Purdue Pharma, which faces thousands of lawsuits, might soon file for bankruptcy, which, of course, it did.

Dr. Van Zee said he couldn’t question the state’s decision but was deeply disappointed. The lawsuits against Purdue Pharma and other opioid manufacturers and distributors have been consolidated under one federal judge in Ohio. Johnson & Johnson was ordered to pay $572 million to Oklahoma for its role in the epidemic. This is one case in one state. There are more than 2,500 lawsuits that are pending against Purdue Pharma.

Failure of public officials to police actions of corporations

After living through the opioid epidemic for 20 years, Dr. Van Zee, Ms. Kobak and Sister Beth all share the belief that the only way to prevent a similar catastrophe is for the truth to come out about the actions of corporations and the failures of public officials to oversee them. “I hope it puts a light on what huge systematic changes we can make so that this doesn’t happen again.” Twenty years later, hundreds of people are struggling with addiction, and the national failure to contain an epidemic has grown more complex.

Many of our clients are seniors who come in to our offices to create their Living Trusts. The result is numerous conversations on a wide range of topics related to current health and health care issues and end-of-life planning.

California Document Preparers assists our clients in the preparation of their Trusts, which include a Power of Attorney and Advance Healthcare Directive. Most are surprised at how easy it is. Schedule an appointment today by contacting us at one of our three Bay Area offices. Our dedicated team is helpful, compassionate and affordable.