Too often I have a family come into our office to take care of a loved one’s estate. The conversation can go something like this:
“We’re here to finalize my Uncle’s estate, but don’t worry, it will be easy. He put everything in a Revocable Trust.”
The person usually then goes on to explain that they understand that having everything in a trust means there are no taxes to be paid, and that it will be quick, painless and inexpensive.
I am the one who gets to deliver the sad news. The Trust, because it is revocable, likely has no effect on the taxation of the estate. A house that grandpa owns outright versus a house that is owned by a trust where grandpa is the trust beneficiary and the trustee (which is the most common way these trusts are created) are taxed identically. No tax savings.
It is possible to save on inheritance taxes by use of an irrevocable trust. Everything which grandpa puts into an irrevocable trust, however, no longer belongs to grandpa. You may be able to save on inheritance taxes, but you lose control of the asset.