In general, there are no federal tax consequences on the creation of a trust.
That is technically correct. The creation of a trust by itself does not trigger any federal tax consequences. However, depending on the terms and conditions of the trust and who the beneficiaries are, FUNDING the trust may have some tax consequences.
However, the fiduciary of trusts must file form 1041 with the IRS which details the income, losses, and gains of a trust.
A Form 1041 is not required for a Totten trust arrangment. A "Totten trust" is a banking arrangement in which funds are placed in a bank account by the grantor "in trust for" some other person. The "trust" is revocable by the grantor at any time, thus allowing the grantor to get the money back. Once the grantor dies, the money in the account passes to the beneficiary of the trust. The New York Court of Appeals (NY's highest court) approved of the use of these trusts even though they did not meet the technical requirements of NY trust law, thus allowing the funds to pass to the beneficiary outside probate. It is this case that gives the Totten trusts their name.
Because the arrangement is revocable, Totten trusts are treated as grantor trusts and thus the grantor is taxed on the income from this arrangement until he dies. Rev. Rul. 62-148, 1962-2 C.B. 143. Because of this, the funds in the account are also going to be included on the grantor's federal estate tax return, if he has enough assets to be required to file one.
As a result of being a grantor trust, a Form 1041 is not required. Instead, if the trustee
follows the appropriate procedures, the income will only need to be
reflected on the grantor's individual income tax return (Form 1040) and the need for the trust to file a
separate Form 1041 is eliminated. See the discussion of this starting on
page 11 of the 2009 Form 1041 instructions.