Question

1. Prior to Carl's death, he created a revocable trust to which he transferred all his property. At the time of Carl's death, his probate estate is zero. Which of the following is true?

1. since the revocable trust will become irrevocable at the time of Carl's death, his creditors will not be paid out of the trust.  
2. only if Carl has no beneficiaries or heirs will his creditors be paid.   
3. Carl's creditors will be paid out of the revocable trust.

2. For tax purposes, an S corporation is most like

1. a partnership.  
2. a trust.
3. a C corporation.

Answer 1

Carl's creditors will be paid out of the revocable trust.

Assets in a revocable trust at the grantor’s death are available to raise cash to pay estate taxes, administration expenses and debts immediately after death, without waiting for a probate decree or issuance of preliminary letters. If the trust is funded prior to death, the property in the trust remains in the trustee’s name before and after the death and is immediately available for liquidation should the need arise.

Corporation.

Revocable trusts do not save income taxes, nor do they save estate taxes. In fact, during a grantor’s lifetime, the IRS may actually discriminate against revocable trusts in certain specific income tax situations. In most cases, however, the property in a revocable trust is treated as if it were the grantor’s own property for both income tax and estate tax purposes.