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    Trustee Fees

    A mother died leaving all assets to a trust for severelly disabled child age 30+. Brother was named Trustee. He died. Sister was named by court to be trustee. She is disabled and does not work. She must make an accounting to the court for transactions in the trust. She is not allowed to invest assets(cd's) into anything but CD"S. The state of Virginia sets a fee to which she can take. Sometimes she takes a fee sometimes not. My question is: Is this fee subject to SE tax? I don't think so but may be second guessing myself. Any help or cite greatly appreciated. Thanks

    #2
    No SE

    Only professional trustees pay SE. If you manage one trust you are not a professional trustee.

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      #3
      Pub 17 pg 96

      states the matter succinctly. Tell the trustee that she may get a love letter from her friends at the IRS and if she does she should bring it to you asap. Report the income on Line 21 of F 1040 (but only the fees she actually received as constructive receipt does not apply to fees she waived) and don't tick the box you probably have that would make L 21 income subject to SE. IOW as I assume you knew she does have to pay income tax on this money but not SE tax which was your question.

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        #4
        There is a similar issue that's not directly related to the OP above. If a CPA, EA or other tax "professional" serves as executor of someone's will or as successor trustee of his living trust, are the fees he receives in that capacity subject to SE tax, assuming he receives them directly and doesn't commingle them with his regular CPA or other business income. Assume also that the recipient is not a professional executor or trustee but only serves as one occasionally.

        Would it make a difference if the decedent was a client, versus just a friend? (Some become both.)

        Would it make a difference if, say, three or four clients and one friend all died in the same year and he served as executor or trustee for all of them? Is there a number/quantity or other defined cutoff point?

        Several of my clients and one or two of my friends have named me to serve as their executor or trustee, so it's going to become an issue ... some day.
        Roland Slugg
        "I do what I can."

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          #5
          Generally you are considered a professional if you are an attorney, accountant, banker and usually a financial planner.

          I think it would be arguable on many situations that a tax preparer is a professional for this business but if you are on this board in August, I'd consider it your business and make you as a professional. If you are a CPA or EA, I'd say you are a professional. If you are a seasonal tax preparer / working under someone else's credentials, you likely aren't a professional.

          If you call yourself a financial planner but really only sell Life Insurance, I'd say you likely can avoid the "professional" designation. If you have any type of financial planning credential I believe you've held yourself out to the public as a professional.

          JMO.

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