Trust Income reported on personal return

[taxbrewster]

I am doing my friends taxes. He married a very wealthy woman. Her father set up several trusts which have dividends, interest, and capital gains throughout the year. I spoke with her father and he wants me to report the trust capital gains on their personal returns. It is what his CPA advised him to do. But I think the trust should have it's own return correct. The 1099-B is in a different federal ID number then the wife SS #, so should that not be reported on the trust return and taxes paid by the trust? Is it possible to attribute that income to their personal 1040?

I have been finding conflicting results on my research. Thanks.

[Joel]

If the trust has an EIN then the IRS is expecting a trust return. If the trust states that the income received by the trust is to be distributed to the trust beneficiaries, then the trust will issue K-1 to each of the benes with their share of the income.

[jasdlm]

Get a copy of the trust document. Sometimes the Trustee has discretion re: flow-through of capital gains. However, does not alleviate the need for a 1041/K1.

[taxbrewster]

Those were my thoughts exactly, prep at 1041 and then issue a k1 to the t/p. I have not seen the guide lines yet as far as how the trust was set up, but I will. Thanks for the help.

[TAXBILLY]

Whoa!!

These are probably Grantor type trusts where you would file the 1041 without K-1s but add a list of items that would be reported on the 1040.

Go to ATX, pull up a 1041, mark the upper left box that says Grantor type trust and read the note in red at the center of page 1.

Then learn about Grantor type trusts.

taxbilly

[joelgilb]

You need to look at the trust document to determine if it is a simple / grantor's trust or a complex trust.

If its a simple grantor's trust you can report everything on the Grantor's 1040. But you do need to read the document that was prepared by the attorney

[joelgilb]

also, I think we are all assuming the grantor is still alive. If not this will change the answers.

[taxbrewster]

Ok, well I guess I need to obtain the trust documents, there will be my answer.

Thanks for the input.

[taxbrewster]

Still though, a 1041 needs to be filed no matter what correct? Then that determines what type of trust it is and how to handle income, etc. You can't just input the information from the trust on to someone's sch b and sch d.

[BulldogTom]

Well, yes you can if it is a revokable living trust. In effect, the trust does not really exist until it becomes irrevokable.

So, I could put all my assets into a revokable living trust, and all the income would still go on my 1040. NO 1041, NO K-1.

Tom

Lodi, CA

[kcjenkins]

The one thing not clear to me.....is her father wanting to put the income on HIS return, or on the daughter's return? A big difference.

[Terry D EA]

Let me add my 2 cents worth here. All of the suggestions are good but any trust return is nothing less than complex and you should not proceed until you have the trust instrument. One suggestion was a trust return (1041) should be filed anyway. What if this were a CRUT where the trust return is to be completed using form 1041A that carriers a 5k penalty for filing on the wrong form. Again, I apologize if you think I am yelling but GET THE TRUST DOCUMENTS.

[Don in Upstate NY]

Still though, a 1041 needs to be filed no matter what correct? Then that determines what type of trust it is and how to handle income, etc. You can't just input the information from the trust on to someone's sch b and sch d.

...

Well, yes you can if it is a revocable living trust. In effect, the trust does not really exist until it becomes irrevocable. So, I could put all my assets into a revocable living trust, and all the income would still go on my 1040. NO 1041, NO K-1.

True, but a revocable living trust should not have it's own EIN in that case. The earnings would all be reported under the SSN of the grantor.

[Margaret CPA in OH]

The 5227 now incorporates the 1041-A and has for a year or two.

[taxbrewster]

The income would be included on the daughters return. Still waiting on the trust documents. The trust does have it's own EIN, the father explained they treated the income on the daughters return as "income from pass through". I think they did it as well, to save on the cost of filing the trust returns since the amount of income as so low.

[Terry D EA]

The 5227 now incorporates the 1041-A and has for a year or two.

[/quote

Margaret you are correct, as if you needed me to tell you that. I get the same one every year and will probably continue for some time.