Deduction of Acct Manakement Fees in a TRUST return

Forum|Forum|6 years ago
February 15, 2020
2 replies
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Can investment management fees be deducted on a Trust Return? How/where do I enter them?

Anonymous_

Level 15

@HRM wrote:

Can investment management fees be deducted on a Trust Return? How/where do I enter them?

Generally, such fees and costs are not deductible. Per Section 67(e), in order to be deductible by the trust, the fees must be those that would not be incurred if the property were not held in a trust (i.e., if a hypothetical individual would incur the same fees, then the fees are not deductible by the trust).

Expenses that are paid or incurred in the administration of an estate or trust and that would not have been incurred if the property were not held in such an estate or trust are deductible under Sec. 67(e)(1). Expenses deductible under Sec. 67(e) include costs paid for tax preparation fees for most returns, appraisal fees, and certain fiduciary expenses, as outlined in Regs. Sec. 1.67-4. Costs that are not deductible under this section are those that customarily would be incurred by a hypothetical individual holding the same property

HRMAuthor

Level 2

Let me ask again. A portion of the Trust is invested in the market by a Investment Advisor firm and earns income.

The firm charges approximately 2% fee. Would not the taxable income that is distributed to the beneficiary be the income less the fee? If so, where should the fee be deducted?

Anonymous_

Level 15

@HRM wrote:

Let me ask again. A portion of the Trust is invested in the market by a Investment Advisor firm and earns income.

The firm charges approximately 2% fee. Would not the taxable income that is distributed to the beneficiary be the income less the fee? If so, where should the fee be deducted?

I understood your scenario before you posted the above response and the answer continues to be that the trust is unlikely to be able to deduct the fees (read below and the italicized words in my previous post).

The problem is investment advisory fees were miscellaneous itemized deductions subject to the 2% AGI floor. Those deductions were almost entirely eliminated by the TCJA (tax reform) so the fees are no longer deductible as itemized deductions (nor deductible otherwise).

In order for those fees to be deductible by the trust, you need to show that a typical individual would not have incurred those fees if that individual held the investments in his/her individual account, which is simply a tough argument to sell; an individual would have likely also incurred the same fees as the trust.

Anonymous

brokerages that charge fees do so in several ways. some give you a choice as to how fees are charged. one way is to charge a fee on each trade. such fee is included in the purchase price of the security. another way is to periodically charge (my firm - once a quarter) charge x% per year based on the value of the holdings. with my firm the value of all accounts (including my individual account) is totaled the % is applied then divided by 4. ask your broker, but I'm pretty sure the same fee would apply regardless of whether it was an individual account or trust/estate account. this is one wat they generate revenue for providing investment advice.

Anonymous_

Level 15

@12309 wrote:
....I'm pretty sure the same fee would apply regardless of whether it was an individual account or trust/estate account.

As am I because, unless they are also providing some extra service(s) for the trust, there is actually no more work or time involved in managing investments for a trust/estate account than an individual account.

HRMAuthor

Level 2

The firm replied that the fees are for active investment of the funds deposited with them weather from a trust or an individual. They actually only provide investment services as the trust is registered with another firm.