Client comes in with a 1099 for the cancellation of a life insurance policy. The policy is the Irrivocable LI Trust's policy. In essence the trust is now defective. WHAT do I do with the 1099???? It is made out to the Trust with a 36,000 taxable amount. Does it go to the grantor or does the trust pay the taxes..???
-
This post is for discussion purposes only and should be verified with other sources before actual use.
Many times I post additional info on the post, Click on "message board" for updated content. -
For what it is worth, (and I don't know if it is right), I did one last year. This trust had been filing a 1041 for years, so it was just a matter of creating a K-1 and transferring the taxable amount to the beneficiary. In my case, the beneficiary was changed to the client and the client received the K-1. Actually, the client was thrilled that the whole amount was not taxed to her. I found out at the time the taxable amount could go either way. The client insisted she pay. -
In this case there has been no death of the grantor so the trust was never funded nor no 1041 ever filed. Therefore there is no beneficary issues.
But thanks for the feed back.Last edited by BOB W; 04-09-2009, 09:37 PM.This post is for discussion purposes only and should be verified with other sources before actual use.
Many times I post additional info on the post, Click on "message board" for updated content.Comment
-
I just got off the phone with the lawyer that handled the Life Insurance Trust and he said it is treated like an "investment" and it is taxable to the grantor on his 1040. OK???This post is for discussion purposes only and should be verified with other sources before actual use.
Many times I post additional info on the post, Click on "message board" for updated content.Comment
-
You didn't say, but I am assuming this is a 1099-R for taxable gain on the surrender of the life ins policy. Since the trust should have owned the policy, it should have the trust's EIN on it. And I agree with JSLATER that it passes thru to the trust bene via K-1 and gets reported on the bene return. The trust is not "funded" until death benefits are paid out, unless you want to count the annual gifts to the trust to pay the premiums. That is just an in-and-out, and no 1041 is usually done. However, who got the proceeds of the surrender? Should have gone into the trust.Last edited by Burke; 04-11-2009, 01:25 PM.Comment
-
The 1099 was issued to the trust but the lawyer said to account for it on the personal tax return of the grantor.This post is for discussion purposes only and should be verified with other sources before actual use.
Many times I post additional info on the post, Click on "message board" for updated content.Comment
-
By the very nature of an ILIT, it is irrevocable. What happened? If the trust owns the policy, then the trust owns the cash surrender proceeds. Who is the trust beneficiary?Comment
-
It was his brother. Then he got married and had a child. So he and his wife set up a new trust and purchased a joint life policy (second to die) for their child(ren). I believe the proceeds from the old trust was used to purchase the new policy in the new IRR. Life Trust.Originally posted by Burke View Post
I had done some research last year for him but saw no easy way to switch the policy from the old trust to the new trust. With the cashing out of the policy the money went to the trust's name $179,000 with 39,000 of it taxable. Lawyer said, make it taxable to the grantor. I think the trust should pay the taxes but I will follow my client's legal advice and let the chips fall where they may.Last edited by BOB W; 04-11-2009, 06:16 PM.This post is for discussion purposes only and should be verified with other sources before actual use.
Many times I post additional info on the post, Click on "message board" for updated content.Comment
Comment