You might have seen a reality TV series about “trust fund kids” having lavish birthday parties, but what is a trust exactly? When it comes to taxes, trusts are no more interesting than any other kind of business. Yes, according to the IRS, a trust is a business, even though it doesn’t have employees. It is a business because it is not a human being, but it has income and expenses. Therefore, trusts are subject to the same tax laws as other businesses.
Why Establish a Trust?
The purpose of a trust is to be a neutral third party that transfers property from one party (the grantor) to another (the beneficiary). The trust fund kid stereotype comes from the fact that beneficiaries are sometimes too young to receive the money immediately. The beneficiary does not have to be a child, though, or even an individual person. An estate is a type of trust in which the grantor is a deceased person.
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How to Establish a Trust
You need an employer identification number (EIN) to make your trust official. Fortunately, it is easy to apply online for Tax ID number. When you apply for your tax number online, you will receive an email with the EIN for your trust within an hour. Your next step is to meet with a lawyer who specializes in trusts in order to get advice about managing the trust. It is also a good idea to meet with an accountant well in advance of tax time.
Do not be intimidated by the name; trusts are not only for fabulously wealthy people.
Establishing a trust can help lighten the tax burden when you are transferring property to someone else. It is easy to set up a trust when you apply online for an EIN.