• Learn about tax filing requirements for living trusts.tax time image by Gale Distler from Fotolia.com
  
  Most living trusts are basic revocable trusts that don't require any tax filing requirements until after the person who creates the trust (the trustor) dies. While the trustor is alive, the trust is simply an extension of the trustor and therefore is included in the trustor's personal tax filing information. However, if you have created a more complicated irrevocable living trust then you may have to file an annual trust tax return with the IRS.
  
  

Trust Types

• It is important to identify what type of trust you have because this directly effects your tax filing requirements relative to the trust. When you create a revocable trust, the law treats the trust as simply an extension of your property for all purposes except probate. This means that any trust income is simply your income, so you just include that income on your personal tax return each year. But, the law treats irrevocable trusts as independent taxable entities. An irrevocable trust is not an extension of the trustor, which means the irrevocable trust earns its own income.
  
  

Annual Return

• Irrevocable trusts require the filing of an annual income tax return with the IRS. The first step, though, is to obtain a Taxpayer Identification Number from the IRS for the trust. The IRS has created a specific tax return for such trusts. The form is IRS Form 1041 "U.S. Income Tax Return for Estates and Trusts." The form is much like an individual income tax return (form 1040), except that all of the questions relate specifically to the property and income of the trust. Most trusts allow the trustee to hire a professional tax preparer, and the trustee can pay the tax professional with trust funds.
  
  States that impose a state income tax may also require the preparation of annual state income tax returns, but these requirements vary widely depending on where you live.
  
  

Final Returns

• For both revocable and irrevocable trusts, the trustee must file a final estate tax return within nine months after the trustor dies. Additionally, the trustee must file a final income tax return by April 15 of the year following the year in which the trustor dies. Finally, some states impose estate and/or income taxes, and if so, the trustee will also need to file the appropriate state tax returns. Again, those state requirements vary widely depending on where the trust is located.