Before I meet with a tax professional on this subject, does this summary at least look like I'm on the right track to have that discussion with them? ...
- A 1041 is not required if all distributions are from principal [corpus] and the Trust earns no income and owns no interest [income] earning stocks, bonds, accounts, property, or other.
- The IRS only generates the Schedule K-1 for the beneficiaries based the information provided on Form 1041. Since no 1041 is required for the distribution of corpus, no Schedules K-1 are generated or sent to the beneficiaries.
- Distributions of corpus are considered gifts by the IRS.
- Any gifts distributed, per person, over the current annual exclusion ($16,000.00 in 2022) must be reported on Form 709, but are not taxable to the giver under the lifetime exclusion of $12.09 million in 2022.
- The IRS only uses Form 709 to track the lifetime exclusion.
- No gift taxes are owed on the cumulative amount of distributions below the lifetime exclusion. Only the amount over the cumulative lifetime exclusion is considered a taxable gift.
