Business & Finance Small Business

Trustee Tax Information


    • The obligation to file a tax return on behalf of a trust is triggered when the trust becomes irrevocable. This happens automatically when the grantor dies, even if the trust was revocable when it was created. A trust is also irrevocable if the trust documents states that it is, unless the grantor keeps titled assets in his own name or continues to exercise control over trust assets. The trustee, not the grantor, is responsible for filing tax returns on behalf of an irrevocable trust.

    Form 1041

    • Form 1041 must be filed to report trust income during the tax year. Form 1041 must be filed if the trust earned any taxable income at all. As of February 2011, even if the trust earned no taxable income, it must file Form 1041 if it earned at least $600 in non-taxable income. The trust must file also Form 1041 even if it has no income at all, if any of its beneficiaries is neither a U.S. citizen or a lawful permanent resident.

    Schedule K-1

    • Several versions of Schedule K-1 exist; a trust must file the version designed to be used in conjunction with Form 1041. In addition, the trust must distribute a copy of Schedule K-1 to each beneficiary. Schedule K-1 reports distributions from the trust to each beneficiary. Beneficiaries are then taxed on the distributions they receive during the tax year. Distributions must be reported on each beneficiary's Form 1040.


    • The assets of an irrevocable trust do not pass through probate after the grantor dies, meaning that the beneficiaries can avoid delay in the distribution of assets. In addition, trust assets are not counted when calculating the grantor's taxable income for the purpose of assessing estate tax after the grantor dies. This may or may not matter, depending on the size of the grantor's estate. Estate tax is only assessed on the portion of the value of the estate that exceeds the estate tax exclusion. The value of this exclusion changes nearly every year, but is almost always in the seven-figure range.

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