Top 10 Trust Tax Tips


Top 10 Trust Tax Tips

By Casie Stephens, Trust Specialist III

Tax season is upon us! Although MSNT staff are not tax accounting experts and cannot give tax advice, we are available for your trust questions. After the Tax Cuts and Jobs Act (TCJA) of 2017, MSNT reevaluated trust tax designations for First Party Trusts. Many trust accounts have become Grantor Trusts while some remain Non-Grantor Trusts; this will change what tax information you may receive in the new year.

Listed below are trust tax tips for all trusts administered by MSNT:

1. Life Beneficiaries are responsible for filing their own personal tax returns. Personal tax preparation fees and payment of personal taxes are an allowable expense that can be requested from the trust.

2. All First Party trusts and some Third Party trusts are irrevocable and are a separate tax entity. MSNT obtains a trust tax identification number when an irrevocable trust is opened.

3. For tax accounting purposes, MSNT may require additional information about the source of funds used to open a trust. Any 1099 or Schedule K-1 received for the initial or subsequent deposits to the trust should be forwarded to MSNT as soon as possible.

4. MSNT contracts with an accounting firm to review all irrevocable trusts to determine if a tax return or grantor statement is required and, if required, to prepare the trust tax returns.

5. Trust tax preparation fees are paid by the trust and reported on the trust account statement.

6. When a First Party Trust has a tax designation of Grantor, the designated Co-Trustee, Life Beneficiary or legal representative will receive a grantor statement from MSNT prepared by the accounting firm in March. The grantor statement will reflect the trust’s income and deductions for the year. The Life Beneficiary will need to provide this grantor statement to their tax preparer to determine if there will be personal income tax consequences

7. When a First or Third Party Trust has a tax designation of Non-Grantor, the designated Co-Trustee, Life Beneficiary or legal representative may receive a Schedule K-1 in March. MSNT recommends the Life Beneficiary wait to file personal income tax returns to avoid an amended return.

8. MSNT is responsible for filing the trust tax returns for all irrevocable trusts if required.

9. Third Party revocable trust donors are responsible for filing their own personal tax returns and the Third Party revocable trust taxes. In both instances, they will be filed with the individual’s social security number.

10. A 1099 is sent to the donor(s) of Third Party revocable trusts.