22. Who pays taxes on assets in the trust?

You do — and that's intentional. The trust is a "grantor trust," which means the IRS treats you and the trust as the same taxpayer. All trust income (dividends, interest, gains) goes on your personal tax return each year, whether or not you receive any money. The trust itself files no income tax return and pays no income tax. This is actually a benefit: the trust grows without being reduced by taxes, and your paying the tax bill is not treated as a gift. The trustee also has discretion to reimburse you for these taxes from trust funds.

23. Does contributing assets use up my lifetime gift exemption or annual gift limits?

No. The trust is deliberately structured so contributions are incomplete gifts — because you keep certain powers over where the assets ultimately go, the IRS doesn't treat funding as a taxable gift at all. No gift tax return is required for funding, nothing counts against your $19,000-per-person annual limits, and your full $15 million lifetime exemption stays intact. Two flip sides: the assets remain part of your taxable estate at your death (see Question 25), and if you later use your redirect power to send trust assets to another person, the gift completes at that moment and does count against your exemption.

24. Are distributions from the trust taxable to me when I receive them?

No. Because you and the trust are the same taxpayer for income tax purposes, money or assets moving from the trust to you is a tax-free non-event — like moving money between your own accounts. (Any sale of an appreciated asset triggers capital gains tax on your return whether the sale happens inside or outside the trust — which is exactly why the basis step-up is so valuable.)

25. What happens to the trust when I pass away?

The assets are counted in your taxable estate (the trade-off for no gift tax at funding — see Question 23), and they receive another basis step-up at your death. The trust then continues for your spouse first, then divides into protected lifetime shares for your children once the youngest reaches 25. Your children's shares remain shielded from their creditors and divorces, and children can become co-trustees of their own shares at 25 and take fuller control at 35. Your parents' role ends at your death — they are lifetime-only beneficiaries, and any unused parent power is typically wound down as part of the plan. Note for residents of states with a state estate tax (like Washington): trust assets remain part of your state taxable estate too — this structure protects assets and manages capital gains taxes; it does not remove assets from your estate for estate tax purposes.