Top 10 Tax Tips

Casie Stephens

 

Top 10 Trust Tax Tips

By Casie Stephens, Director of Trust Services

Tax season is upon us! Although MSNT staff are not tax professionals and cannot give tax advice, we are available for your trust sub-account questions.  MSNT contracts with True Link Financial Services for trust tax preparation services. As a reminder, each type of trust, First Party, Third Party Irrevocable and Third Party Revocable, has its own pool for investment and management purposes. Within each pool, there are six different types of investment portfolios. Funds deposited for the Life Beneficiary are pooled together with similar trust and portfolio types for investment and tax optimization purposes.  However, all earnings are individually accounted for. A Life Beneficiary’s portion of the pool is called a sub-account.


Listed below are tax tips for all trust sub-accounts administered by MSNT:

  1. Life Beneficiaries are responsible for filing their own personal tax returns.
  2. Personal tax preparation fees and payment of personal taxes are an allowable expense that may be submitted as a request for funds.
  3. Don’t file too soon! You will be receiving your important tax documentation in March.
  4. Notify us of any change in address as soon as possible so the documentation we mail out gets to you as timely as possible.
  5. Sub-accounts within the First Party and Third Party Irrevocable Trust Pools are irrevocable. As of October 2020, these sub-accounts are not a separate entity for tax purposes and do not have a separate tax identification number. This reduces the tax preparation fees for each sub-account.
  6. For tax accounting purposes, MSNT may require additional information about the source of funds used to fund a trust sub-account. Any 1099 or Schedule K-1 received for the initial or subsequent deposits to the trust sub-account should be forwarded to MSNT as soon as possible.
  7. The First Party Trust Pool is a Grantor Trust. The Co-Trustee, responsible party or Life Beneficiary will receive a Grantor Letter in March. The Grantor Letter will reflect the income and deductions for calendar year 2021. The Life Beneficiary will need to provide the Grantor Letter to their tax preparer to determine if there will be personal income tax consequences.
  8. The Third Party Irrevocable Trust Pool is a Non-Grantor Trust. The Co-Trustee, responsible party or Life Beneficiary may receive a Schedule K-1 in March. The Schedule K-1 will reflect the income and deductions for calendar year 2021. If you receive a Schedule K-1, the Life Beneficiary will need to provide this Schedule K-1 to their tax preparer to determine if there will be personal income tax consequences.
  9. The Third Party Revocable Pool is a Grantor Trust. The Donor will receive a Grantor Letter in March. The Grantor Letter will reflect the income and deductions for calendar year 2021. The Donor will need to provide the Grantor Letter to their tax preparer to determine if there will be personal income tax consequences.
  10. For the Third Party Revocable trust sub-accounts, no 1099 will be sent. The Grantor Letter replaces the 1099.