Hi,
I am sorting out who is responsible for taxes on an ILIT. My understanding is that it is an irrevocable complex grantor trust. I have a scenario where no income was paid but now the insurance company has demutualized. First, the stock pays dividends so are dividends considered income at the trust, beneficiary, or grantor level? Second, if the shares are sold, are the capital gains taxed at the trust, beneficiary, or grantor level? Third, if the insurance policy is surrendered and the cost basis is less than the surrender value, a 1099-R will be generated. At which level (trust, beneficiary, or trust) will the 1099-R be taxed at? I am curious about this as I read that stock received as part of a demutualization is not a taxable event and is considered principal for the trust, not income. Should the proceeds of all these events be considered a principal distribution and not income?
Thanks!
