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rr2016
New Member

Does the beneficiary of a revocable trust have to pay any taxes on the distributions that he/she receives from that trust?

I am the beneficiary of a revocable trust meant for education and medical costs. 

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Critter
Level 15

Does the beneficiary of a revocable trust have to pay any taxes on the distributions that he/she receives from that trust?

Income Tax Treatment of Irrevocable Trusts

The trustee of an irrevocable trust must complete and file Form 1041 to report trust income, as long as the trust earned more than $600 during the tax year. Irrevocable trusts are taxed on income in much the same way as individuals. The trustee must also file Schedule K-1 and deliver copies of it to each beneficiary who received a distribution from the trust during the tax year.    

Distributions to beneficiaries of an irrevocable trust, however, are taxable to beneficiaries at ordinary income tax rates.

http://finance.zacks.com/tax-consequences-revocable-irrevocable-trusts-2838.html

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3 Replies
Critter
Level 15

Does the beneficiary of a revocable trust have to pay any taxes on the distributions that he/she receives from that trust?

Income Tax Treatment of Irrevocable Trusts

The trustee of an irrevocable trust must complete and file Form 1041 to report trust income, as long as the trust earned more than $600 during the tax year. Irrevocable trusts are taxed on income in much the same way as individuals. The trustee must also file Schedule K-1 and deliver copies of it to each beneficiary who received a distribution from the trust during the tax year.    

Distributions to beneficiaries of an irrevocable trust, however, are taxable to beneficiaries at ordinary income tax rates.

http://finance.zacks.com/tax-consequences-revocable-irrevocable-trusts-2838.html

bwcathe
New Member

Does the beneficiary of a revocable trust have to pay any taxes on the distributions that he/she receives from that trust?

You said. "Distributions to beneficiaries of an irrevocable trust, however, are taxable to beneficiaries at ordinary income tax rates. "  Does this apply to distribution of principle or only on income created by the trust?
maglib
Level 10

Does the beneficiary of a revocable trust have to pay any taxes on the distributions that he/she receives from that trust?

In general, you will not have to file IRS Form 1041, the U.S. Income Tax Return for Estates and Trusts, for your revocable living trust – at least not as long as you're alive and well and serving as its trustee. Revocable trusts are flow through trusts and all income is recognized by the beneficiaries. All interest, dividends and other income earned by those assets are reported to the Internal Revenue Service on your own tax return. All income earned by your revocable living trust is reported on your personal Form 1040, not on a separate revocable trust tax return.

A form 1041 is only needed depend on complex personal circumstances. You don't have to report income and losses on your own personal return, and sometimes it can be better not to do so, but you'll pay any taxes due, all the same, either personally or out of the trust and the Trust tax rates are often higher than personal rates.

Revocable Trusts become irrevocable at death and then must have their own EIN number and file tax returns.
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