Revocable Trust

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My husband's (grantor) revocable trust will become irrevocable upon his passing. Should I as co-trustee and principal beneficiary report trust income on my tax return, or will I need to submit two tax returns.

Anonymous

It depends. if the trust has an EIN (not always) and the assets are held in accounts using the EIN rather than his SSN, a grantor trust return needs to be file. a grantor trust is a disregarded entity and doesn't pay taxes and doesn't issue a K-1. such a return, if needed, would merely report the income and expenses on a schedule or listing which would then need to be entered in the appropriate sections of his tax return.

if an EIN is not used and no return, the activity would be reported as if the trust did not exist just the same as above .

not sure what you mean by two tax returns. as a grantor trust the income is reported by the grantor.

upon death of the grantor the trust becomes irrevocable and the trustee (sometimes the grantor names a person or entity other than the spouse) must follow the provisions of the trust. thus a trust return would need to be filed starting with the date of his death. I would suggest using a pro for the first year. you may even want to discuss the trust with a pro in advance. for example the trust may provide that upon death two other trusts are to be created a marital trust and a residual trust. (sometimes referred to as A and B trusts ) each of these trusts would need to file returns and the provisions usually differ.

MKS1Author

Level 2

Thanks for the reply and for the assistance. The trust is under my husband's SSN, and my understanding is that I will need to establish an EIN for that trust after his passing. (there are no marital or other trusts involved.) But I assume I will need to file two tax returns, one for the trust and one for me personally (I am the trustee and principal beneficiary.) Or can they be consolidated under one return? I will definitely call upon a CPA when needed, but I appreciate all insights.

jtax

Level 10

In the situation you describe (i.e. your husband's revocable living trust becoming irrevocable) upon his death, you will usually need to file two returns. A 1041 as trustee. Any income distributed to you (or any others) will be deducted on the 1041 and a K-1 form giving to the recipient, who will then report it on their 1040. If more income is received by the trust than is distributed, the trust will pay tax on that difference. Typically capital gains stay with the trust, but that can depend upon the language in the trust document and the actions of the trustee.

But all of this depends a lot on the terms of the trust. You should definatley seek the guidance of an estate attorney or CPA or enrolled agent who deals with trusts all the time. (Most don't, but this is a complicated and specialized area).

Some attorneys in some states draft "joint trusts" ... if your husband's trust is actually part of a joint trust, then it might not become irrevocable until your passing.

Also the trustee of the irrevocable trust has varies fiduciary duties to the beneficiaries (not just the current beneficiaries but the beneficiaries who get the trust assets after the passing of the current beneficiaries). Again you really need to seek qualified counsel to review your exact circumstances.

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