What taxes do we need to pay when creating a Trust Fund for our beneficiaries?

Thanks for the info! So if we choose an irrevocable trust, would we be subject to gift tax on the entire $780,000 right away? And does it make a difference if the beneficiaries are minors?

The gift tax question depends on several factors. For 2025, each person has an annual gift tax exclusion of $18,000 per recipient, meaning you and your husband could each give $18,000 to each beneficiary tax-free annually ($36,000 total per beneficiary per year). Beyond that, you'd use part of your lifetime gift and estate tax exemption, which is currently around $13.6 million per individual (adjusts for inflation). Whether beneficiaries are minors doesn't affect the gift tax calculation, but it may influence how you structure the trust to manage assets until they reach adulthood. Many people choose to include provisions that delay full access to trust assets until beneficiaries reach certain ages or milestones.

How exactly does taxr.ai work with trust documents? Can it analyze an existing trust or only when you're setting one up? I've had a family trust for about 3 years and I'm wondering if I've been filing everything correctly.

Sounds interesting but I'm a bit skeptical. Is this just a generic analysis or does it actually take into account state-specific trust laws? Trusts can be treated very differently depending on your jurisdiction.

It works with both new and existing trust documents - you just upload what you have and specify whether you're in the planning or management phase. It saved me hours of research by identifying specifically which sections of my trust could trigger immediate vs. deferred taxation. Yes, it absolutely handles state-specific trust taxation. You select your state during setup, and the analysis reflects both federal and state-level tax considerations. I was especially impressed with how it flagged California's unique treatment of out-of-state trusts, which I hadn't even considered.

How does this actually work? Does it just auto-dial over and over until it gets through? Seems like it would just make the wait times worse for everyone if a bunch of people used this.

Sorry, but this sounds like complete BS. Nobody can magically get through the IRS phone system faster. There's a queue and everyone waits. I've never gotten through in less than 2 hours during tax season.

It doesn't just auto-redial - their system navigates the specific IRS menu options based on your tax issue and secures your place in the queue legitimately. The technology monitors hold times and keeps your place in line so you don't have to stay on the phone for hours. It's the same queue everyone else is in, just managed more efficiently. I completely understand your skepticism - I felt the same way! The reason it works is that they have specialized technology that monitors the hold patterns and responds to prompts without dropping your place in line. The IRS has even acknowledged these services exist because they operate within their call system's rules - they just remove the pain of doing it yourself.

Is that true even for testamentary trusts created through a will after someone passes away? I thought those had different tax treatment for the first two years.

You're thinking of qualified disability trusts or bankruptcy estates, which have different rules. Standard testamentary trusts (created through a will) generally face the same compressed tax brackets as other irrevocable trusts. A key strategy many use is to distribute income to beneficiaries in lower tax brackets when appropriate, while retaining income in the trust if beneficiaries are already in high brackets or if there are non-tax reasons to keep assets protected in the trust.

Be VERY careful with those arrangements. The IRS has been aggressively auditing split-dollar life insurance trusts. The tax benefits looked great on paper for us, but we ended up in a 3-year dispute with the IRS over valuation methods. Unless you have a specialized attorney familiar with recent rulings, I'd avoid this strategy.

Thanks for the warning - that's exactly what I was worried about. Our advisor kept emphasizing the benefits without much discussion of the risks. I'll definitely get a second opinion before moving forward.

That's really good to know! I hadn't even thought about differences between states. We're in Illinois but have property in Wisconsin too. I'll definitely look into which state would be more advantageous for establishing the trust. Thanks for bringing this up!

Wow, I hadn't even heard of GST tax before reading this! This is exactly the kind of detail that makes me nervous about setting up a trust without really understanding all the implications. When you say "skip-persons" - does that specifically mean grandchildren, or would my sister's kids count as skip-persons even though they're the same generation as my own kids? Also, is the 40% GST tax rate applied to the entire transfer amount, or just the portion that exceeds the exemption? This seems like something that could completely change the math on whether a trust makes financial sense for our situation.