The Gig Economy: The Winners and the Losers

California has passed legislation that could help hundreds of thousands of independent contractors become employees. It would provide the opportunity to earn a minimum wage, overtime pay and other benefits. Yet this legislation is highly controversial. Uber, for one, doesn’t think the law’s provisions apply to its drivers. They’re just one company that is contesting this law.

The emergence of contractors, or “alternative” workers

The recession of 2009 was a catalyst, producing hundreds of thousands of contractors. These are workers who were laid off during the recession and started their own consulting firms or other small businesses, not necessarily out of choice but necessity.

Many of these contractors are older workers, those in their 40s, 50s and 60s

As the economy began to improve, employers were reluctant to hire these workers back at a higher rate when they could employ younger staff at a lower cost. They might hire those older workers as temporary contractors, but they wouldn’t be paying for their healthcare, 401k plans or other benefits. One study shows that as many as one in three adults works a “nonstandard”, or temporary, job to get by. Some of these are retired people who need more money to supplement their incomes, or they may like the stimulation and structure of being in the workforce, even if on a part-time basis.

Here’s the gig economy formula: If the company directs their tasks and the work is part of the company’s main business, the business falls within the new law. Employees are covered by minimum-wage and overtime laws. Businesses must also contribute to unemployment insurance and workers’ compensation funds on their employees’ behalf.

An estimated 1M contractors are likely to be affected by the measure

• Think of nail salons, janitors and construction workers, administrative help in a wide range of professional offices.
• The tech industry and business in general outsource everything these days—writers, graphic designers, photographers and developers.
• As workarounds, workers may find their schedules and job descriptions changing; others may be out of jobs as costs rise.

Governor Newsom intends to sign the bill but has indicated that he would be open to negotiating changes or exemptions with businesses like Uber and Lyft if they were willing to make other concessions. That has added to the air of uncertainty about the law. Litigation is also likely to follow.

Uber’s drivers expected to retain their independent status

Uber remains confident that its drivers will retain their independent status when the measure goes into effect on Jan. 1. In order to classify drivers as contractors, Uber must prove that it doesn’t direct and control drivers, and that they typically operate an independent driving business outside their work for Uber. Drivers for Uber and Lyft are split on the bill.

The ruling could apply to many industries that predate the gig economy

Some religious congregations would struggle to pay for full-employment benefits for their leaders if they were converted from independent contractors to employees. “For small churches that operate on very small budgets, it could force them to lay off their rabbi or maybe only hire them part time,” said Nathan Diament, the public policy director for the Orthodox Union Advocacy Center.

The costs for app-based businesses could be significant

Uber held a troubled initial public offering in May and has reported large losses and slowing revenue growth. Dara Khosrowshahi, Uber’s chief executive, has laid off hundreds of employees in recent months to cut costs.

The law levels the playing field

Construction companies have long complained that they face unfair competition from rivals that classify workers as contractors so they can avoid paying payroll taxes and lowball bids on projects. App-based companies are “starting to send carpenters, electricians, plumbers off their platform. These lower-wage employees are undercutting brick-and-mortar businesses who are doing the right thing — paying for workers’ compensation, being very efficient, working hard to make a profit.”

The new law has created anxiety and confusion for the wine industry

Small vineyard owners are concerned that they could be forced to employ the independent truckers who haul their harvests. They’d have to pay insurance and workers’ compensation. These truckers currently operate as contractors, with their own rigs and insurance, and serve several vineyards.

Creating a Living Trust is an important part of estate planning

Whether a contractor or employee, creating a Living Trust is an important part of life planning. Our Living Trust portfolio includes an Advance Healthcare Directive and a Power of Attorney. California Document Preparers assists our clients throughout the process. 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.

The Fed: Helping Us Save for Retirement

The government is responding to statistics showing that current generations are not saving for retirement. Unlike their thrifty parents, many baby boomers are alarmingly ill-prepared for retirement. Many other employees are more focused on present financial needs than future ones. The implications of generations of people who are unable to work–but without resources to live–present a potentially overwhelming burden on the government. Finding ways to help people prepare for retirement is in everyone’s best interest.

The recession gave birth to entrepreneurs and consultants

Remember the recession? Those who couldn’t get jobs started their own businesses. They learned they couldn’t depend on someone else for a job. This was especially true for older workers. Companies were looking for a younger, cheaper workforce. There’s a good chance those companies are not providing retirement plans, that they’re outsourcing work rather than hiring employees and having to pay for benefits.

• A study shows that only 51% of Americans are employed by companies withretirement plans.
• Of those employees, only 40% actually participate.
• In addition, experts say one in three Americans has less than $5,000 in retirement savings and 21% have none.

Financial planners recommend seniors save $1M before retiring

Because life expectancies are much longer than they were for previous generations, financial planners recommend that seniors save a minimum of $1 million before retirement. Clearly, many are falling short of that goal. In an effort to change this gloomy retirement forecast, the U.S. House of Representatives passed The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. The bipartisan bill attempts to address the financial readiness of seniors for retirement.

The SECURE Act:

• Encourages small businesses to offer employee retirement plans.The bill lets small businesses cut through administrative red tape and ignore certain legislative mandates to tailor retirement plansto their needs. It also permits multiple small employers to band together and create 401k plans. Under the bill, some part-time employees may also have access to employer retirement plans.
• Permits retirees to accumulate more retirement savings over a longer period of time. The bill raises the required minimum distribution age for retirement plans from 70.5 to 72. In addition to permitting retirement plans to earn more over an extended period of time, the bill will also make retirement savings last longer. The year-and-a-half delay in distributions will result in a larger retirement account and prevent seniors from spending their savings sooner.
• Removes the age limits on contributions to IRAs.Previously, no contributions were permitted after age 70.5. The bill removes that restriction.
• Creates more payout options for annuities purchased through employer retirement plans.The SECURE Act would permit lifetime-income investments, such as annuities, to be paid out in monthly installments as well as in a one-time lump sum.
• Changes payout options for beneficiaries of retirement plans. Currently, beneficiaries of retirement plans can stretch out distributions over their expected lifetimes, permitting the funds to continue to grow tax-free. The SECURE Act eliminates this stretch-out option, requiring that nondesignated beneficiaries, such as Trusts, receive all retirement benefits within five years of the retirement fund owner’s death.
• Expands the use of 529 account funds.The House Ways and Means Committee removed a provision that would permit beneficiaries of 529 college saving plans to use such plans to pay for homeschooling, special needs students, and private education. However, the new bill does authorize penalty-free withdrawals of not more than $10,000 to pay for certain student loans and apprenticeships.

The U.S. Senate is considering its own financial retirement measure—The Retirement Enhancement and Savings Act (RESA similar to SECURE). The differences lie in proposed changes to the stretch-out rules. There is bipartisan support for the SECURE Act; it passed by 417 to 3 votes in the House and has the greatest chance of being enacted. The act must pass a vote in the Senate to become law.

Creating a Living Trust is an important part of financial planning

California Document Preparers assists our clients in the preparation of their 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.

‘Tis the season for Holiday Scams

I dodged a scam this week from a company that called to renew my subscription to McAfee, my antivirus software. They directed me to a website and told me I had to pay $420 for a two-year subscription. This felt a little hinky, but then, I’ve had a computer virus and it’s frightening how quickly it infects your entire hard drive and destroys files.

I hedged a bit, suggesting that I only wanted a one-year subscription

Apparently this wasn’t an option. Now I was getting really suspicious. I asked this guy to call me back in an hour, and I quickly contacted my computer guy. Subject line: “Is this for real or a scam?” He responded within 15 minutes. “SCAM. These guys don’t make calls.” He just saved me $420 and likely more. Once these guys find an easy mark, they’re eager to make another score.

This incident alerted me to potential holiday scams

Holiday scams target online shoppers. Stats show that a whopping 60% of us are buying our gifts online this year. ZeroFOX warns that scammers’ most successful efforts snare shoppers by impersonating major brands with phony websites and social media campaigns. Those most at risk—sites and campaigns related to fashion, tech and sporting goods—all the stuff we want!

These phony sites and fake posts entice you to spend money for products you’ll never receive. Many are designed to harvest credit-card numbers and other personal data to commit identity theft or sell on the dark web. Scammers may distribute malware-loaded links or attachments via supposed coupon offers or “order confirmation” emails asking you to verify an order you never placed. Gift-card frauds also shift into high gear during the holidays.

Be alert; watch for signs of a potential fraud when there are:

• Ridiculously deep discounts on hot items–especially if they’re on unfamiliar websites.
• Spelling errors or shoddy grammar on a shopping website or in an email.
• Branding errors. If a phony website is masquerading as a well-known brand, there’s a good chance that the branding is poorly executed.
• Shopping or travel sites that don’t list a phone number or street address and offer only an email address. These are often offshore and have no contact information or accountability.
• Sites that don’t have privacy policies.

A few tips for secure online shopping this season:

• Mouse over links in emails and social media ads. This will display the destination URL, and you can click through only if you’re certain it’s a legitimate site.
• Be an informed consumer. Doing some quick online research could save you some heartache. Google unfamiliar sites. Search for their names along with keyword terms like “scam,” “complaints” or “reviews”.
• Before purchasing, make sure return and refund policies are clear.
• Don’t buy anything from a site unless the URL begins with “https://” or there’s a padlock or unbroken key icon in the address bar or at the bottom of the browser window. These indicate a secure connection.
• Don’t buy anything online while using a public wifi network, as it may not be secure.
• Don’t make a purchase or donation if a website or caller seeks payment by wire transfer, gift card or prepaid card.

Forget about really great deals and free gifts

Finally, if an unsolicited email asks you to click on a link or download an app to receive or be eligible for a really great deal or to arrange delivery for a free gift, ignore it. This is the one where you’ll know as soon as you click that it’s too late. You could be infecting your computer with a virus as well as setting yourself up for fraud.

The holidays: A very good time to talk to your family about creating a Living Trust

Many of our clients have told us that the holidays are the perfect time to talk to reluctant parents about creating a Living Trust. For many families, it sets the stage for a discussion about appointing a Power of Attorney and an Agent for their Advance Healthcare Directive. A Trust is really about families, and it’s one of the most thoughtful thing you can do for those you love.

California Document Preparers assists our clients in the preparation of their Living Trusts. Our dedicated team guides you through every step. Schedule an appointment today by contacting us at one of our three Bay Area offices. Our dedicated team is helpful, compassionate and affordable.

Peter Rothstein likes that his job has a social purpose. It expands clean energy to mitigate climate change. Best of all, he will soon be able to support that mission in his retirement plan. Socially conscious investing is gaining ground.

Identifying 401k offerings that support environmental, social and governance (ESG) factors

The Northeast Clean Energy Council, where Mr. Rothstein is president, will revise its 401k plan offerings to include mutual funds promoting those sustainability goals. The revamped plan will include a target date fund series that screens for environmental, social and governance factors, called ESG investing. The council, a nonprofit business alliance of 250 companies, will continue to offer traditional choices such as total-market index funds, but the ESG option will be the default investment choice for Mr. Rothstein’s staff of about a dozen employees.

“These new business models have the potential to be climate solutions and to grow the economy at the same time,” he said. “It makes sense for us to incorporate ESG investing for our retirement plan.”

The idea of investing with a social purpose is gaining ground

• Sustainable and responsible investing in the US grew 38% from 2016 to the start of 2018, to $12 trillion in assets under management, according to the US Sustainable and Responsible Investment Foundation (SIF). SIF is a US-based membership association that advances sustainable, responsible and impact investing across all asset classes.
• Morningstar reported that 2018 marked the third consecutive year of record flows into sustainable funds; the number of sustainable funds also jumped nearly 50%.

Most sustainable investments are held by institutional and high-net-worth investors

US SIF data showed that of the $12 trillion invested last year, 72% was held by pension funds, insurance companies and educational and philanthropic groups; 25% by high-net-worth clients or individual investors.

Many think 401k plans will play a larger role in ESG investing, driven partly by demand

• A Morningstar study published this year found that more than 70% of the US population has “at least a moderate interest” in sustainable investing.
• The appetite is especially strong among younger workers: 67% of millennials would be more likely to contribute, or increase their plan contributions, if they knew their investments were contributing to social good.

Most ESG mutual funds rely on ratings systems that score securities for their exposure to indirect financial factors, including a company’s environmental impact, governance policies or how they treat employees or monitor their supply chains.

Critics argue that investors must sacrifice strong returns in return for their socially responsible choices. But a growing body of evidence finds that ESG-screened equities were better than average on measures of quality, financial health and volatility.

A look at San Francisco’s Veritable Vegetable

Veritable Vegetable, an organic produce distributor in San Francisco with about 130 workers, has included socially responsible mutual funds in its 401k plan since 1995. “Since the beginning, we’ve been committed to promoting environmental sustainability in everything we do,” Shira Tannor, the company’s chief administrative officer, said. “We have a different vision of what profitability means,” Ms. Tannor said. “We pay a good living wage to our workers, and sustainable prices to the farmers we work with, and we help people eat healthy food. We’re a for-profit business, but if we have nothing left over after that, we consider that a success.”

Evidence that ESG can match or beat traditional investment options is sparking interest

“We’re getting more questions from plan sponsors — they’re asking if they should be adding this to their investment menus,” says Mikaylee O’Connor, head of defined contribution solutions at RVK, a New York-based investment firm that advises workplace retirement plans. “What’s driving many of the conversations is more research that supports consideration of sustainable investing.”

Fiduciary responsibilities come first

Federal law mandates that sponsors place economic interests of participants ahead of other considerations when making decisions about retirement benefits. But guidance issued in recent years by the Labor Department on whether ESG products meet that obligation has shifted repeatedly.

Some senior managers view their 401k plans simply as a cost center, rather than as a way to promote company values or retain employees. Mr. Rothstein, however, remains bullish. His council’s shift to a socially responsible 401k plan was resonating with employees. “Everyone working in this industry, and more people in general, are recognizing that this matters,” he said.

Creating a Living Trust is an important part of financial planning

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.

Divorce and Pets: Who Gets the Dog?

A recent New York Times article tells the story of a divorcing couple who amicably divide all community property. The problem was Zoe, a Jack Russell terrier, that “Jim” brought to the marriage. Technically, Zoe belonged to him. In North Carolina, a community property state, pets are classified with “stuff”, to be divided equally between the parties. Three states — Illinois, Alaska and, effective this year, California — have amended their family code to treat pets differently from other types of marital assets.

The divorce lawyer explained that pets are treated in the same way as TVs, furniture and cars. Zoe belonged to Jim like any of the other assets he had brought into the marriage. Jim and “Bob” had been together for 13 years, married for four. During that time they’d shared the cost of Zoe’s regular vet visits, organic food and treats, the groomer, dog walkers–even her canine psychiatrist.

The author had asked for joint custody of Zoe

Over the years, Bob grew to love Zoe, character flaws and all. “I came to appreciate how she would wake up happy every day, ready to greet the world with her prancing walk. I came to see how cataracts near-blinded her and incontinence shamed her. How could I not love her?”

He asked Jim for joint custody for two reasons. In addition to his deep attachment to Zoe, Bob had also hoped that sharing responsibilities for their pet would help them stay connected. Perhaps Zoe could provide an enduring tie.

Zoe was considered personal property

Jim’s answer was “no.” His lawyer advised him that Zoe was considered personal property and he alone could determine her future. For this reason, Bob was sitting in his lawyer’s office, contemplating paying $16,000 for joint custody. His legal team had examined other state laws and come up with a proposed dollar amount for Zoe’s shared custody.

While Zoe was priceless, $16,000 seemed excessive for an 11-pound geriatric terrier. Heartbroken, Bob signed the separation agreement that listed Zoe somewhere between “electric salt and pepper shaker” and “red bowl” on the property inventory. Then Jim and Zoe drove away.

A few weeks later, an email from Jim: No pets allowed

“Would you be interested in having Zoe full time?” “Yes!” Jim finally disclosed that his new townhouse wasn’t dog-friendly. Although the legal agreement was signed and recorded, Bob took full custody of Zoe. Jim wrote again, making sure Bob knew that he wouldn’t pay for any of Zoe’s care “because I won’t ever see her again.” So much for staying connected.

It’s just Bob and Zoe now. Two weeks shy of 17, Zoe is still chasing squirrels. Bob lost his parents and separated from Jim within a few months of each other. He is grateful for the comfort that Zoe brings.

A lawyer with the Animal Legal Defense Fund suggested a “petnup”

Dog lovers understand what the loss of a pet means to its owner. A petnup is a formal agreement of the best way to avoid custody disputes when a relationship ends. It works just like child support. Options include sole custody, joint custod y and even pet support.

California assemblyman Bill Quirk noted in 2018, while advocating the change in law. “As a proud parent of a rescued dog, I know that owners view their pets as more than just property. They are part of our family, and their care needs to be a consideration during divorce proceedings.” Thanks to Mr. Quirk, since January, California judges have been permitted to consider the wellbeing of the animal, as well as who provided its care, in working out custody agreements.

Pet lovers who fear their animals will outlive them should make provisions in their Living Trusts

People who die before their pets leave stranded animals. In a best-case scenario, a neighbor, family member or friend cares for the pet for the rest of its life. The alternatives? The Humane Society estimates that six to eight million dogs and cats enter shelters annually. An estimated half are adopted, and the rest are euthanized. In some sad cases, after the death of its owner a pet is simply let out the front door to get lost, run over or any of the other horrible fates that befall abused animals.

Consider a Pet Trust

A Pet Trust is a legal document that outlines the continued care and maintenance of domestic animals; it also names new caregivers or directs Trustees to find new homes for pets. A Trustee has a legal duty to carry out your wishes. When naming a Trustee, think about the expense of caring for a pet. Food and visits to the vet can add up. Some owners make outright gifts of cash for their animals’ care. Read our blog about creating a Trust for your pet.

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.

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.