Top 10 Trust Tax Tips

Top 10 Trust Tax Tips

By Casie Stephens, Trust Specialist III

Once again, tax season is upon us! Although MSNT staff are not tax accounting experts and cannot give tax advice, we wanted to provide a few reminders.  MSNT is available for any trust related questions.


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 allowable expenses from a special needs 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 established.

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 a tax accounting firm to review all irrevocable trusts to determine and prepare a tax return, Schedule K-1 or grantor statement if required.

5. Trust tax preparation fees are paid by the trust and reported on the quarterly 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 prepared by the tax accounting firm and mailed by MSNT in early March. MSNT recommends the Life Beneficiary wait to file personal tax returns until the grantor statement is received. The Life Beneficiary will need to provide the 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 prepared by the tax accounting firm and mailed by MSNT in early March. MSNT recommends the Life Beneficiary wait to file personal tax returns until the Schedule K-1 is received. The Life Beneficiary will need to provide the Schedule K-1 to their tax preparer to determine if there will be personal income tax consequences.

8. MSNT is responsible for filing the trust tax returns for all irrevocable trusts if one is 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 of Third Party revocable trusts.