I am the trustee and beneficiary of a QTIP trust. The trust document stated as follows:
"At any time or times during the trust term, the trustee shall pay to or apply for the benefit of the surviving settlor so much of the principal of the trust as the trustee deems proper to pay the reasonable expenses of the surviving settlor for his or her health,. education, support , and maintenance. "
The trust files tax return each year and generates K1. After income tax paid either by QTIP trust or by me, the money left in the trust should be all after-tax money. I use trust fund to pay my expense each month, including mortgage payment. My tax accountant told me that although such money distribution to me has no tax consequence, all the expenses I paid from QTIP trust needs to be reported in the tax return. Is this the case? Do I have to keep a list of the checks that I wrote to pay my expense/bill each month and report such list to IRS when there is no tax consequence involved?
Thanks!
Do I have to keep a list of the checks that I wrote to pay my expense/bill each month and report such list to IRS when there is no tax consequence involved? There is nothing to report for federal income tax purposes when you receive a principal distribution from the trust. the K-1 contains all the reporting information you need.
Thank for your answer.
I had a different tax accountant previously. This year, I switched to a new tax accountant. She told me that
"There is no need to amend previous years since it these distributions would not affect the overall tax result of the Trust and Individual returns. However, going forward we would need the list of all payments made from the bank accounts of the Trust."
Why does she need a list of all the payments made from the bank accounts of the trust?