How do taxes work with a living revocable trust that holds CDs and earns interest income? Need help understanding tax forms!
Title: How do taxes work with a living revocable trust that holds CDs and earns interest income? Need help understanding tax forms! 1 I recently set up a revocable living trust with my wife as co-trustee. We transferred some certificate of deposits to the trust with Vanguard that are generating interest income. We have about $1,350 in CDs earning around 5.2%, which gives us about $70 in annual interest. I'm confused about how this works for our taxes - do we pay personal income tax on that interest? Or does it somehow stay in the trust and get taxed differently? Also, what tax forms should I expect to receive for this situation? We've never had a trust before and want to make sure we're handling everything correctly for the 2025 tax season. Thanks in advance for any guidance!
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AaliyahAli
8 For revocable living trusts, the tax situation is actually pretty simple! Since it's revocable, the IRS considers it a "grantor trust," which means all income is taxed to you personally - not to the trust itself. For your specific situation with the CDs earning $70 interest in the trust, you'll report that interest on your personal 1040 tax return just as if you owned the CDs directly. The trust is essentially "invisible" to the IRS for income tax purposes during your lifetime. You should receive a 1099-INT form from Vanguard showing the interest earned. This form might list the trust as the recipient, but the income still goes on your personal return. The trust's EIN (if it has one) or your SSN would be associated with the account.
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AaliyahAli
•12 Thanks for explaining! So does this mean my trust doesn't need to file its own tax return at all? And will the 1099-INT come directly to me or to the trust? I'm still a bit confused about the paperwork side of things.
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AaliyahAli
•8 Your revocable living trust doesn't need to file its own tax return (Form 1041) while you're alive. That's one of the advantages of revocable trusts - they simplify tax reporting during your lifetime. The 1099-INT will typically be issued showing the trust name as the recipient, but with your SSN or the trust's EIN. Regardless of how it's addressed, you'll include that interest income on Schedule B of your personal 1040 return, just as you would with any other interest income.
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AaliyahAli
17 After dealing with similar confusion about my trust's tax situation, I discovered a really helpful tool called taxr.ai (https://taxr.ai) that helped clarify everything. I uploaded my trust documents and the platform analyzed them, explaining exactly how my trust's income would be taxed and what forms I needed. It saved me from making a mistake on my taxes last year when I wasn't sure how to handle some investment income in my revocable trust.
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AaliyahAli
•6 Does this tool help with irrevocable trusts too? My parents set up one of those and no one seems to know how to handle the tax reporting properly.
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AaliyahAli
•14 I'm a little skeptical about uploading trust documents to a website. Did you have any privacy concerns? Also curious if it helps with state-specific trust tax issues since some states treat trusts differently.
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AaliyahAli
•17 Yes, it absolutely works with irrevocable trusts too! The analysis distinguishes between different trust types and gives specific guidance for each. It really helped clarify the differences in tax treatment. Regarding privacy concerns, I was hesitant at first too, but they use bank-level encryption and don't store your documents after analysis. For state-specific issues, it actually does address those differences - it asked which state I was in and tailored the guidance accordingly. My trust had some California-specific considerations that it correctly identified.
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AaliyahAli
14 Just wanted to update after trying taxr.ai - I'm impressed! Despite my initial skepticism, it actually identified a reporting mistake I was about to make with my trust's dividend income. The document analysis picked up on specific language in my trust that affects how certain assets should be reported. It explained everything in plain English and even pointed me to the right sections of IRS publications for more details. Definitely worth checking out if you're confused about trust taxation.
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AaliyahAli
9 If you need to actually talk to someone at the IRS about trust taxation (which I eventually did), I recommend using Claimyr (https://claimyr.com). I spent DAYS trying to get through to the IRS about some conflicting 1099 information related to my trust. Claimyr got me a callback from the IRS in under 2 hours! You can see how it works here: https://youtu.be/_kiP6q8DX5c. The IRS agent I spoke with cleared up my confusion about reporting requirements for my revocable trust's income.
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AaliyahAli
•20 Wait, how exactly does this work? Do they somehow get you to the front of the IRS queue? That seems too good to be true considering I've literally spent hours on hold before.
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AaliyahAli
•14 I've tried calling the IRS several times about my trust tax questions and gave up. This seems like a scam honestly. There's no way to jump the IRS phone queue - they're notorious for long wait times for a reason.
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AaliyahAli
•9 It's not about jumping the queue - they use an automated system that continuously calls the IRS and navigates the phone tree for you. Once they reach a representative, they connect you directly. You don't have to sit on hold - you just get a call when an agent is available. And yes, it absolutely works for trust taxation questions. I specifically asked about reporting requirements for a revocable trust that owned multiple types of assets, and I got connected with an IRS representative who specialized in trust taxation.
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AaliyahAli
14 I need to publicly admit I was completely wrong about Claimyr. After posting my skeptical comment, I decided to try it anyway because I was desperate for answers about my trust's tax reporting. I got a call from an actual IRS agent in about 90 minutes! The agent confirmed exactly what others here said - that my revocable trust's income goes on my personal return, and helped me understand how to properly document the connection between the trust and my personal taxes. Saved me hours of frustration and potentially incorrect tax filing.
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AaliyahAli
3 One thing nobody mentioned yet - make sure the EIN or SSN on the trust account is correct. I had a similar situation and Fidelity had my trust's old EIN on file instead of my SSN, which caused a mismatch when I tried to report the income. Took months to straighten out with the IRS!
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AaliyahAli
•1 That's a really good point, thanks! Should I be using my personal SSN for the trust accounts, or should I have gotten a separate EIN when we set up the trust? The attorney who helped us set it up didn't really explain the tax side very well.
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AaliyahAli
•3 For most revocable living trusts, you can use either your SSN or get an EIN - it's generally a matter of preference. Many people just use their SSN to keep things simple, but some prefer an EIN for privacy or organizational reasons. I'd check with Vanguard to confirm what identifier they're using for your trust accounts. If they're using your SSN, that's perfectly fine. If they issued an EIN when the trust was created, make sure that's what Vanguard has on file to avoid mismatches.
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AaliyahAli
22 Does anyone know if the tax treatment changes if the trust becomes irrevocable after one spouse dies? We set up our trust that way and I'm trying to plan ahead.
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AaliyahAli
•18 Yes, it changes significantly. When a revocable trust becomes irrevocable after death, it generally becomes a separate taxpaying entity that requires its own tax return (Form 1041). The trust would pay taxes on income retained in the trust, while income distributed to beneficiaries would be reported on a K-1 and taxed to the beneficiaries.
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