OT: Anyone here an expert on trust beneficiary tax implications?

[robcac26]

I just received a payment through an inter vivos trust in which all of my grandmother's assets were transferred to my uncle except for a defined dollar amount allocated to myself and my sister. It isn't a huge amount, but it is enough that the bank will have to report it to the IRS when we deposit it. I understand these things are usually not taxed, but we received the money in the form of a personal check from the trustee, our uncle, so I'm not sure how this would be distinguishable as a beneficiary payment. I suppose the trust agreement would be the proof? My uncle gave us each a two-page copy of it, and the bottom of the second page is where it says the defined amount of money my sister and I are supposed to receive, but there are no signatures or anything on the bottom, which makes us wonder if we did not get the full document and if that would be an issue when we try to use it as proof that this is tax exempt.

Has anyone dealt with this before? Is it normal for this payment to be via personal check? From what I've read, it sounds like I should receive a K-1 form to use when filing my taxes, but since I just got a personal check I don't know how I would get that form because nobody involved in this has my tax ID, and I don't know the tax ID for the trust so I wouldn't be able to just fill out a blank one. Do these trust agreements normally have signatures at the end, meaning I did not get the whole thing? How do I make sure I don't get taxed on this?

 

[WasatRutgers]

I just received a payment through an inter vivos trust in which all of my grandmother's assets were transferred to my uncle except for a defined dollar amount allocated to myself and my sister. It isn't a huge amount, but it is enough that the bank will have to report it to the IRS when we deposit it. I understand these things are usually not taxed, but we received the money in the form of a personal check from the trustee, our uncle, so I'm not sure how this would be distinguishable as a beneficiary payment. I suppose the trust agreement would be the proof? My uncle gave us each a two-page copy of it, and the bottom of the second page is where it says the defined amount of money my sister and I are supposed to receive, but there are no signatures or anything on the bottom, which makes us wonder if we did not get the full document and if that would be an issue when we try to use it as proof that this is tax exempt.

Has anyone dealt with this before? Is it normal for this payment to be via personal check? From what I've read, it sounds like I should receive a K-1 form to use when filing my taxes, but since I just got a personal check I don't know how I would get that form because nobody involved in this has my tax ID, and I don't know the tax ID for the trust so I wouldn't be able to just fill out a blank one. Do these trust agreements normally have signatures at the end, meaning I did not get the whole thing? How do I make sure I don't get taxed on this?

I’m not an expert but I have been trustee of a special needs trust. You definitely point out some unusual things, related to the paperwork, but other experts will have to opine on that and the K-1, etc. You’re sensing that things should be more buttoned up, and that is correct. If uncle somehow isn’t handling the payment through a trust account and an attorney and proper trust accounting, it may cause headaches down the road. However, if you have some confidence that the amount you are receiving is correct, and it has been paid from your uncle’s personal account, then there are no tax implications, because anyone can give anyone any amount of money and it will not have tax implications for the recipient. So it really comes down to whether you believe your uncle is handling the trust properly and that the amount you’re receiving is accurate. If not, you may want to consult your own attorney.

 

[robcac26]

I’m not an expert but I have been trustee of a special needs trust. You definitely point out some unusual things, related to the paperwork, but other experts will have to opine on that and the K-1, etc. You’re sensing that things should be more buttoned up, and that is correct. If uncle somehow isn’t handling the payment through a trust account and an attorney and proper trust accounting, it may cause headaches down the road. However, if you have some confidence that the amount you are receiving is correct, and it has been paid from your uncle’s personal account, then there are no tax implications, because anyone can give anyone any amount of money and it will not have tax implications for the recipient. So it really comes down to whether you believe your uncle is handling the trust properly and that the amount you’re receiving is accurate. If not, you may want to consult your own attorney.

Thanks. I did some more reading and it sounds like the bank reporting to the IRS is really just to detect money laundering rather than incurring a tax bill, so I probably don't need to worry about that.

The amount we got is indeed what the trust agreement says, but my sister is surprised at how little it is and the fact that we were only given the first two pages of the document has her suspicous of if the later pages we weren't given included something more for us. Personally I'm hesitant to be that skeptical of a family member but my sister does have some good points. She tried calling the law office that the trust agreement is from to see if they'd send us the full document, but they said they couldn't find my grandmother's name and would have to dig through the paper files and call her back, which just makes this even more bizarre.

 

[Bagarocks]

Iam a Trustee of a special needs trust presently for the past 8 years.
The Trust has its own checking account.
So if he wrote you a personal check, then he made the withdrawal then deposited in his account then wrote you a check?
Any income Taxes on a Special Needs Trust have al ready been paid by the Estate when the Trust was enacted.
The only Taxes owed are capital gains on interest and dividends which are paid by the Trust.
I dont think there are any tax issues with you or your sister.
The Trustee yer Uncle I presume better have his deification consolidated for the IRS.
hope this helps.

 

[WasatRutgers]

Thanks. I did some more reading and it sounds like the bank reporting to the IRS is really just to detect money laundering rather than incurring a tax bill, so I probably don't need to worry about that.

The amount we got is indeed what the trust agreement says, but my sister is surprised at how little it is and the fact that we were only given the first two pages of the document has her suspicous of if the later pages we weren't given included something more for us. Personally I'm hesitant to be that skeptical of a family member but my sister does have some good points. She tried calling the law office that the trust agreement is from to see if they'd send us the full document, but they said they couldn't find my grandmother's name and would have to dig through the paper files and call her back, which just makes this even more bizarre.

Beneficiaries of a trust are supposed to be able to see the trust document in full.

 

[FrostyTheWestie]

I just received a payment through an inter vivos trust in which all of my grandmother's assets were transferred to my uncle except for a defined dollar amount allocated to myself and my sister. It isn't a huge amount, but it is enough that the bank will have to report it to the IRS when we deposit it. I understand these things are usually not taxed, but we received the money in the form of a personal check from the trustee, our uncle, so I'm not sure how this would be distinguishable as a beneficiary payment. I suppose the trust agreement would be the proof? My uncle gave us each a two-page copy of it, and the bottom of the second page is where it says the defined amount of money my sister and I are supposed to receive, but there are no signatures or anything on the bottom, which makes us wonder if we did not get the full document and if that would be an issue when we try to use it as proof that this is tax exempt.

Has anyone dealt with this before? Is it normal for this payment to be via personal check? From what I've read, it sounds like I should receive a K-1 form to use when filing my taxes, but since I just got a personal check I don't know how I would get that form because nobody involved in this has my tax ID, and I don't know the tax ID for the trust so I wouldn't be able to just fill out a blank one. Do these trust agreements normally have signatures at the end, meaning I did not get the whole thing? How do I make sure I don't get taxed on this?

I am a trustee (along with my siblings) for a trust set up by my father in which the beneficiaries are my father's children and grandchildren (me, my siblings, and my nieces and nephews). It sounds like it might be similar to what you're describing.

Regarding a copy of the trust, in my case, all the beneficiaries have copies of the full trust agreement, but only the trustees (my siblings and me) have notorized copies. In your case, your uncle may have sent you what he thought were the relevant pages for you. You don't need a full copy of the trust, but as a beneficiary you are entitled to a full copy. You can ask your uncle for a full copy if you want it (or if you don't trust your uncle and think he is hiding something from you).

Regarding K-1, that is only completed if the Trust has a tax liability that is being transferred to the beneficiaries. For example, if the trust earned $5000 in income, depending on how the trust is set up, either the trust pays the income tax on the $5000 and no K-1's are generated, or the trust transfers the tax liability to the beneficiaries and K-1's are generated to let each beneficiary know their share of the liability (e.g., if your share is 20%, you would owe tax on $1000 reported on your K-1).

Regarding your receiving a personal check: In theory you should have received a check drawn on a Trust account. But if the trust assets are not held in an account with checkwriting capabilities, you uncle may have found it easier to transfer the money to his personal account and write a check, rather than set up a new Trust checking account for a one-time payment.

Being a trustee for a trust is a lot of work, often without compensation. I assume your uncle is not a tax attorney or accountant, so the work is outside his expertise. If you and your sister got the correct payments, and you trust your uncle, I'd be inclined to give him the benefit of the doubt. If you don't trust him, contact an attorney and get professional advice.


Note, I am not an attorney nor accountant. I am just sharing information on a football message board based on my experiences.

 

[retired711]

If the trust earns more than $600 this year, then the trustee has the responsibility to file a 2024 Federal tax return for the trust next year on Form 1041 and to send you (and the IRS) a form K-1 that specifies how much of the distribution this year is taxable to you if any. A payment of principal (what was originally put in the trust) is not taxable; a payment of interest or capital gains earned by the trust and distributed to you is taxable to you.

The trust is not liable for tax on income distributed to the beneficiaries; only the beneficiaries are. The income tax rates for a trust are much higher than for an individual, and so it is often in everyone's interest that the income be paid out in the year it is earned.

The trust might not have its own checking account.. Instead your uncle (I hope) keeps track of what the trust is supposed to pay you and writes you a check for that amount.

The trustee (not the bank) is responsible for sending you and the other beneficiaries full copies of the trust.

I hope this helps. But please do not regard this as legal advice -- if you feel you need legal advice, please go to a practicing lawyer.