Consumers all around the world all struggle with the issues of income and taxes. There are some countries where the tax rates are astronomical and people seek relief in any form possible. Due to those seeking tax relief, there have been rumors of using a living trust to avoid taxation. Many wonder is this true? Can you avoid living trust taxation by simply having a living trust and avoid paying income tax because your income is in the living trust?

The overall answer is that no you cannot avoid living trust taxation. Regardless of who the grantor of the trust is, there will still be taxes owed, and they must be paid by the appropriate person. Now the question rises, of who is the appropriate person. Typically, as long as the grantor is still alive, they claim the income from the living trust, minus any appropriate expenses as income on their own income taxes. This is only used as a taxation method if the grantor of the trust is still alive.

The process becomes a bit more drawn out if the grantor is not alive. First scenario is that the proceeds of the trust have not been distributed. The trust still has control over all proceeds, bank accounts, property, and anything else held in trust. If this occurs, the trustee must file for a tax identification number, and file income taxes for the living trust based upon taxable income. As you can see, there is no avoiding living trust taxation with this method.

Your other alternative, comes when the grantor has passed away, and the proceeds have already been distributed. This creates the need for the trustee to acquire a tax identification number for the living trust. Using the tax identification number an account would prepare the necessary tax papers required to show the proceeds of the trust being transferred to each beneficiary. You can find out more about living trust tax and living trusts at http://www.livingtrustservices.com

Once this is filed, each beneficiary would be required to claim their portion of the proceeds from the trust on their own individual income tax forms. As you can see, there is no legal way to avoid living trust taxation in some form. The taxes must be paid from somewhere, it is just a matter of where, depending upon the status of the trust, whether the grantor is still alive, and if the proceeds have been distributed or not. Remembering that there is no legal way to avoid living trust taxation is very helpful, do not believe sales people, or even lawyers who try to convince you that you will not have to pay taxes on the proceeds of a living trust as this information is grossly inaccurate.

The best way to ensure that all proceeds are properly accounted for, is to use an experienced accountant who has experience in living trust taxation issues. This is your best defense against inadvertently making a mistake that could be quite costly. While having your taxes prepared can be very costly, it will be much cheaper than any penalties, or fines that are imposed because of a mistake. In addition, ensure that the tax professional you select, offers an audit guarantee.

By insisting upon an audit guarantee, the accountant you select will be responsible for assisting you in an audit if they make a mistake that causes an audit. This helps protect you from living trust taxation fraud, and ensure that you are filing all of the correct paperwork as necessary for your particular situation. With a good accountant, you are sure to enjoy a good experience with your living trust, whether you are the grantor, or the beneficiary.