Announcement

Collapse
No announcement yet.

Medicaid - Grantor Trust - HELP please

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

    Medicaid - Grantor Trust - HELP please

    This trust according to the attached letter from the Attorney is as follows:

    Trust is a Medicaid Trust that is an irrevocable trust. The trust will NOT have to pay income tax. It is established as a "Grantor Trust" in which the Creator (Mom) will be liable for all income generated by the trust. The trustee (son) must report the annual income to the creator on a K-1.

    This is confusing me because what I'm reading in the IRS instructions, I think it is telling me that only the name, address, and EIN of the trust is reported on the Form 1041 and a statement is attached (not a K-1) listing the taxable income to the Grantor/Creator.

    So, Question 1 is: do I do the statement attachment or a K-1 attachment.

    Next:

    The taxable incomes consists of investments so there is interest earnings, dividend earnings (which are never reinvested - they are taken by Mom), capital gains and sales of investments.

    Article Two of the trust set up states: For as long as the Creator is alive, the Trustee shall pay the net income from the Trust to or for the Creator's benefit. Capital gains shall not be treated as income for purposes of distribution and shall not be distributed to the Creator and must be retained by the Trust.

    Question 2 is: If the Trust must retain the capital gains, is the Creator still responsible for the tax of said capital gains. I think yes … but I'm starting to swim in the whirlpool here.

    Question 3: If I am required to do a K-1 then what about the Sch B - Income required to be distributed currently - is it only the interest and dividends, and sale of stock and NOT the capital gains ? but if that is true then the trust would have taxable income of the capital gains and the letter attached from the lawyer states "The trust will NOT have to pay income tax.

    I appreciate your comments in guiding me in the right direction. Thank you in advance.
    "And So It Begins!!!"

    #2
    REPOST-HELP - Grantor Trust Question

    My question got lost on the board. I'm reposting in hopes someone can help. Thanks


    Originally posted by TaxLadyinPA View Post
    This trust according to the attached letter from the Attorney is as follows:

    Trust is a Medicaid Trust that is an irrevocable trust. The trust will NOT have to pay income tax. It is established as a "Grantor Trust" in which the Creator (Mom) will be liable for all income generated by the trust. The trustee (son) must report the annual income to the creator on a K-1.

    This is confusing me because what I'm reading in the IRS instructions, I think it is telling me that only the name, address, and EIN of the trust is reported on the Form 1041 and a statement is attached (not a K-1) listing the taxable income to the Grantor/Creator.

    So, Question 1 is: do I do the statement attachment or a K-1 attachment.

    Next:

    The taxable incomes consists of investments so there is interest earnings, dividend earnings (which are never reinvested - they are taken by Mom), capital gains and sales of investments.

    Article Two of the trust set up states: For as long as the Creator is alive, the Trustee shall pay the net income from the Trust to or for the Creator's benefit. Capital gains shall not be treated as income for purposes of distribution and shall not be distributed to the Creator and must be retained by the Trust.

    Question 2 is: If the Trust must retain the capital gains, is the Creator still responsible for the tax of said capital gains. I think yes … but I'm starting to swim in the whirlpool here.

    Question 3: If I am required to do a K-1 then what about the Sch B - Income required to be distributed currently - is it only the interest and dividends, and sale of stock and NOT the capital gains ? but if that is true then the trust would have taxable income of the capital gains and the letter attached from the lawyer states "The trust will NOT have to pay income tax.

    I appreciate your comments in guiding me in the right direction. Thank you in advance.
    "And So It Begins!!!"

    Comment


      #3
      Its been awhile since I've done one of these, but it seems to me that if it is an irrevocable trust, it reports on a 1041. Income, whether interest, dividends, or capital gains are taxable to the beneficiary: mom, flowing to her from the K-1. Per the trust docs, the capital gains, however, are part of the corpus, and are not distributed, whereas the interest and dividends are. So her distributions are less than what she is paying in tax per the income on the K-1. Anyone else care to comment?

      Comment


        #4
        Irrevocable

        I just had one come in, that I am trying to obtain the information from the attorney and the trustee.

        I think Joan is on the right track, as what has verbally been told to me is that the Irrevocable Trust can not pay any bills, taxes, etc. Mine has an annuity payout amortization that is passed through and I am guessing that is a reflection of the earnings that need to be placed the K-1 for the income the Irrevocable Trust earned in the tax year.

        We need Natiro, she is the person that can lend us a lot of insight on Trusts and Estates.

        Sandy

        Comment


          #5
          I agree that an irrevocable trust cannot be a grantor trust. It must file a 1041 and either pay tax on the income, or pass the income through to the beneficiary on a K-1 by making an income distribution.

          I would call the attorney and get some more facts.

          Comment

          Working...
          X