Reporting disbursements to a trust

[jtax]

Do you have a question? Did you contribute to a trust or receive money from a trust?

[SECRET166]

The initial space on the submit form did not allow me to properly state my question. Here is my question: My father was trustee of the family trust and had disbursements from social security, pensions, and trust investments deposited into the trust bank accounts. I am now trustee with my father still living. For 2016 only the bank accounts have been changed over to me. The pension and social security are my father's personal funds being deposited into the trust bank accounts. The trust investments are sill in my father's name as trustee, but there are disbursements still being deposited into the bank accounts. How do I now report these on my and my father's tax returns?

[jtax]

This is too complicated and we need more information. Is the trust an revocable trust or an irrevocable trust? Is your father the only settlor/gantor? (Or for example was/is your mother involved?) When you say "family trust" that generally implies irrevocable but when you say you father put personal deposits into the trust bank account, that implies revocable. I would suggest you speak with the attorney who drafted the trusts because he or she will know the details of what was setup.

[jtax]

But I will say that if the trust is a revocable living trust created by just your father and you have simply become the trustee because he cannot manage (or does not want to) the trust assets, then the trust is ignored from an income tax perspective while your father is living. Any accounts in your name as trustee should use your father's social security number. You will get 1099's etc. with his SSN and report on his 1040 as normal. Money coming out of the trust is not taxable just like moving money between your own bank accounts is not taxable. Nor is money coming into the trust because it is a trust. Income is taxable as it normally would be (interest, dividends, social security in many cases, etc.)

You should seek the advice of a trusts attorney because you have fiduciary duties as trustee that you should be aware of (how to manage and spend the money, how to report what happens with the money). It is possible that you could have liability to other people (e.g. your siblings if any or other trust beneficiaries) if you do not fulfill those duties.

[SECRET166]

Thank you. That helps. The trust with all activity is revocable. So, any money coming in with my father's social security is reported on his 1040. Any trust investment disbursements paid to my father would also be reported on his 1040. The trust money pays his living and house maintenance I guess that is not reportable.

[jtax]

Correct. Except that investment income reported on your father's 1040 is not just disbursements paid to him, but any investment income whether in the trustees name or your father's name personally. Just to be clear if the trustee account gets $1000 in interest and pays your father $300, you father's 1040 reports the $1000, not just $300. As long as the trust is revocable it is "disregarded" for tax purposes. All of its income and expenses are treated as paid by its creator(s) (called grantors, settlors).. The trust does not need to file its own tax return as long as it gives your fathers SSN for all of its accounts/transactions.