Irrevocable Trust transfer of Funds( as opposed to Broker reported income) to Beneficiary

As you said, there are now two trusts. The trust with your share is revocable and is certainly a grantor trust.

The trust with your husband's share, if set up properly, is irrevocable and is not a grantor trust. However if you have unlimited right to do whatever you want with the principle of your husband's trust, it may well be a grantor trust as well. If that is the case, it will all come under your SS#. Please see a tax professional to determine what you need to do with regard to this.

Are you allowed to get all the principle from your husband's trust, or are you required to? In the latter case it would be considered a simple trust, because all trust income would necessarily go to you, and you would be taxed on it. In the former case, it would be considered a complex trust because you may or may not get all the income.

How the transfer is made is irrelevant. But that you keep track of the transfers, and whether the transfers are taxable or not, is vital.

death, I have now divided that Trust into an Irrevocable Trust with EIN to file a 1041 next year ( his share as one might say) and a Revocable Trust to file a

contributed/"granted" all the assets of the original Trust, I believe this is no longer a " grantor" Trust, but is this now considered a " Simple" Trust or "Decedent's Estate"?

as from the Revocable Trust account - and my question is .... in order that it should be obviously clear these monies ( I am Not talking about reportable taxable income) are merely going from the Left hand to the Right hand, as it were, is there a preferred way to transfer the monies needed, from the Irrevocable Trust account to my normal Household expenses ( Revocable) account...I want to keep the records as clear as possible.

but I did not really understand your phrase as to whether I was " required" to use all the assets ( principal). I am definitely allowed to use the assets of the Irrevoc Trust ( not just income)- and will if I live long enough, but if I die tomorrow, they will not be used up and the balance after taxes, etc will be transferred through the Will - can you further explain about your phrase "required to use" - it confuses me Thanks Hauslohn

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If your trust was drafted as the typical marital trust was drafted before January 1 of this year, there are two normal options. One option is that someone other than you is one of the trustees. In that case the other trustee can allow you to get anything at all from the other spouse's trust, and it will not do damage to the normal estate planning scheme these trusts were set up for.

However if you are the sole trustee as well as the beneficiary of the deceased spouse's trust, the rule is not the same. In that case, to get the tax benefits the trust is often set up for, you would only be able to access principal to the extent it is necessary for your health, maintenance or support.

There are several reasons for that. First, it's what the tax law says. Additionally, since the other spouse's trust will not be subject to estate tax when you pass away (but your trust will), it is best to use up the funds in your trust before using funds from the other trust.

Starting this year the law changed. Personally I am still writing most trusts the same way I did before, because there are other benefits from doing that. But saving what I referred to as the "marital penalty" is no longer one of them.

That's a long way of getting to the point: if you have the limited power I described above, your husband's trust will be a separate taxable entity with its own tax ID number and its own requirement to file returns when appropriate. On the other hand if you have the unlimited power you described, the purpose of having two trusts (from a tax standpoint) will be eliminated because everything in your husband's trust will be treated as your property for all purposes.

This is not something you should try to analyze on your own. Talk to the lawyer who drafted the trust if you can. Otherwise take it to another estate lawyer to have it looked at.