What are the Tax Consequences of Dissolving a Revocable Trust?
We have a revocable trust that we would like to revoke and move the funds to TOD accounts and a TOD deed. We are doing this because the kids aren’t minors anymore and we don’t want a successor trustee (the trust is outdated). We want the proceeds to go directly to the kids now that they are adults. Would moving the funds to TOD accounts and deed trigger a taxable event if we don’t sell any of the instruments? (We live in a TOD state for real property.) All of the information on line about revoking trusts is about when the trust is dissolved at the end of the settlor’s life instead of during the life of the settlor.
No, dissolving your revocable trust would not be a taxable event. You should be using one of your social security numbers for the revocable trust, so moving the funds from the trust to new transfer on death (TOD) accounts should be no different from moving money from accounts in your own names.
That said, allow me to suggest that you reconsider this decision. Revocable trusts provide a lot of benefits. They can provide for management of your accounts in the event of your incapacity and they dictate what happens to the accounts if one of your children were to die or become incapacitated during your lives. They also allow you do choose who will manage the transition after you have both passed away rather than leaving things as a free-for-all.