Income to a trust with two grantors after one dies

Forum|Forum|9 months ago
September 25, 2025
1 reply
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My parents had a revocable living trust. My father died in February and his former employer paid a large, taxable death benefit to the trust (which got its own EIN in order to receive the payment). Mom was still alive when that payment was received and was still a grantor on the trust. She died a few months later, at which point the trust became irrevocable. Is that benefit taxable to mom and dad on their final tax return since it was received to the trust while mom was still alive, or is it taxable to the trust? If the latter, can it be passed through to the beneficiaries of the trust?

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M-MTax

Level 15

If it's truly a grantor trust (which would be joint if your father and mother were both grantors), then the trust is disregarded for federal income tax purposes and treated as if the grantors accrued the income. The terms of the trust do need to be examined, however.

Sorry for your loss.

SwissmochaAuthor

Level 2

It was truly a grantor trust, which became irrevocable when my mother died. So there will be a partial year 1041 for the trust. I'm just not sure how to handle that taxable income that came into the trust while it was still a grantor trust. The payer (dad's former employer) would not pay out the benefit unless the trust had its own tax ID number. So I got one, a couple of months before mom died, knowing I would need it anyway. The 1099 they will send at the end of the year will have the trust's tax ID number. But I believe it should really be passed through to their personal tax return. I'm just not sure how to do that.

M-MTax

Level 15

It depends upon how you report. A grantor trust can report in a few different ways, one of which is on a 1040 and the other is on a 1041 depending on how the trust is handled.

See https://www.irs.gov/instructions/i1041#en_US_2024_publink1000286019