Revocable living trusts

Property in a revocable living trust is legally considered to be owned by the trustee in a representative capacity for the benefit of the beneficiaries of the trust. Thus, under state law, when the settlor dies, all assets in a revocable living trust escape probate, because they are not individually owned by the settlor. On the other hand, the IRS disregards this legal form and considers the trust assets in a revocable living trust to continue to be "owned" by the settlor, because the trust is revocable and the settlor could unwind the trust, thus reassuming outright ownership. Thus, according to the IRS, all income on assets subject to a revocable living trust is taxed to the settlor.

1. Which viewpoint(s) do you agree most with?

2. Why?

3. Do you accept that both points of view are equally valid from their respective points of view?

4. Why or why not?