On Jan 21, 2:48*pm, "Stuart A. Bronstein" <spamt...[at]lexregia.comwrote:
- quote -


Gene, you said: <<In Maryland, if the trust document is silent then
capital gain distributions
are not considered income and may not be available to pass out to the
beneficiaries BUT the beneficiaries are still responsible for paying
the
taxes on their share of them>
I am unaware of this Maryland law, but I think when gains are retained
the trust pays the tax on the gains If the trustee wishes to
distribute those trust taxed gains, he can distribute corpus ( tax
free to the beneficiary, and only after all income is distributed).
Normally he cannot distribute the tax liability for gains, only
income If the trust specifically says gains can be considered income
he can distribute the gains as income, and the beneficary pays tax on
them, even if the cash is left in the trust..

I agree with your statement that the actual K-1 distributions need not
be of the cash income. The beneficiary pays what is said on the K-1s
but can leave the income in the trust for growth. . Actual money
distributions includes on.Line 10 of Schedule B of 1041 "other
amounts paid, credited or otherwise required to be distributed". So,
by "crediting" the beneficiary with income the beneficary is taxed on
it and the cash stays in the trust.. This line 10 should include any
money distribution of corpus.

You also said <<if the trust had reportable income AND was allowed to
pay the tax directly, it could
still distribute MILLIONS of dollars to the beneficaries without ever
supplying them with a K-1 >
If that actually happened (a trust with income distributing MILLIONS
of $$ ) the beneficiary gets a K-1 for all the income, the remainder
of the "MILLIONS" would be from corpus and the trust would pay no tax
since all the income was distributed as the first $$ of the
MILLIONS..

ed

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"Gene E. Utterback, EA, RFC, ABA" <gene[at]alliancetax.com> wrote:
- quote -

I'll agree with the proposition in general. But my understanding (I
don't do returns so I not be completely accurate in this) is that
taxation of trusts is not the same as taxation of partnerships, even
though both use K-1's, and that a trust distribution generally requires
money or property to be removed from the trust.

Stu

--
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<wmscott63[at]yahoo.com> wrote in message
news:64e95382-f547-49c6-9292-52397187a82c[at]p23g2000prp.googlegroups.com...
- quote -

You are in WAY over your head, you need professional help and you need it
soon.

If $900 is due why are you collecting it from the co-trustees and not the
beneficiaries? The beneficiaries are the ones who get the money from the
trust, the tax is their responsibility - either by passing the taxable
income through to them via the K-1s or by paying it from trust assets.
Collecting it from the trustees is patently improper.

With the caveat that there is no where near enough info available from you
for me to tell you exactly how and what to do, consider this - if the trust
had reportable income AND was allowed to pay the tax directly, it could
still distribute MILLIONS of dollars to the beneficaries without ever
supplying them with a K-1 - from a purely technical standpoint of course.

Also consider that IF a trust document is at all unclear or ambigious about
how to do something, then you MUST follow local law as it pertains to
trusts. For example, consider capital gain distributions from a mutual
fund. Most of us think of these like regular dividends because the fund
manager generated them but that may not be correct.

In Maryland, if the trust document is silent then capital gain distributions
are not considered income and may not be available to pass out to the
beneficiaries BUT the beneficiaries are still responsible for paying the
taxes on their share of them. It all depends on what the document says and
whether it is being interpreted correctly.

Consider another common situation - a bypass trust. These are very common
in second marriages - one parent will set up a bypass trust to shield some
of their assets from Estate tax. By placing them in a bypass trust the
assets can be used for the benefit of the surviving spouse with the residual
going to the remainder beneficiary upon the surviving spouse's death. Very
common situation. This gives the fiduciary BOTH an income beneficiary and a
residual beneficiary whose goals are vastly different.

Now for the $64M question - HOW should the investments be managed - for
growth or income? Remember, the fiduciary has a duty to BOTH beneficiaries.
The surviving spouse wants the assets to produce an income stream so they
can maintain a standard of living, but doing that will almost certainly
stunt growth, which is what concerns the residual beneficiary.

Good luck,
Gene E. Utterback, EA, RFC, ABA

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

"JoeTaxpayer" <JoeTaxpayer[at]comcast.net> wrote in message
news:gl541f$u8p$1[at]news.motzarella.org...
- quote -

ABSOLUTELY - paying tax does NOT require actual receipt of income.

Gene E. Utterback, EA, RFC, ABA

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

"Stuart A. Bronstein" <spamtrap[at]lexregia.com> wrote in message
news:Xns9B9956AF7C583spamtraplexregiacom[at]130.133.1.4...
- quote -

For those unfamiliar with trust taxation - which may include the fiduciary
of the trust being discussed - also keep in mind that words have very
specific meanings in the tax world.

For example, take the word distribution or distributed or more specifically
"Distributed Income" from the front page of the trust return. On the return
it is NOT talking about whether the income beneficiaries are actually
getting any cash. It IS talking about whether the income beneficiaries are
PAYING TAX on the income assigned to them - there is a BIG difference.

Mr. Fiduciary - if you are NOT a tax professional well versed in trust
taxation issues RUN, do NOT walk, to a tax pro who understands trust
taxation. You could be opening yourself up for a world of private
ligitation if you do something wrong, no matter how honorable your
intentions are.

Get professional help NOW,
Gene E. Utterback, EA, RFC, ABA

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

On Jan 20, 3:46*pm, "wmscot...[at]yahoo.com" <wmscot...[at]yahoo.com> wrote:
- quote -

O.K. You have 3 specifi and equal interests in one trust, with a
trustee for each interest, in which case it should be treated as three
seperate trusts, ecah with a tax ID#, an Exemption, 1/3 of the total
income and gains, and their own tax bracket. You will have horrendous
bookkeeping problems to keep the funds equitable if you pay income out
to just one beneficiary, retain his cash reiinvestedt in the trust,
and pay taxes on the other 2/3, or would you give him the income but
charge him 1/3 of the tax in the trust?.

Now at 21 if that beneficiary's trust is distributing cash income to
him. a K-1 must be issued telling him what his tax consequences are.
You are right that if all the income is reinvested no K-1s are needed

ed

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

On Jan 20, 3:22*pm, "Stuart A. Bronstein" <spamt...[at]lexregia.comwrote:
- quote -

The wording of the Trust is not specific to whether taxes will be
assessed to beneficiaries, separately, or to the Trust itself.

However, in practice, the Fiduciary (me) each year completed the
1041. If $900 is due, each of the three co-Trustees pays $300, and I
write the check to the IRS and mail the 1041. Before any of the
Beneficiaries turned 21, no money changed hands, i.e. all dividends
were reinvested. Thus, no K-1's were issued.

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

JoeTaxpayer <JoeTaxpayer[at]comcast.net> wrote:
- quote -

That was my question, too. My understanding is that trust income is
taxable to the trust, not the beneficiary, unless the income is
actually received by the beneficiary.

On the other hand trusts are very often in higher tax brackets than the
beneficiaries, so it might be foolish to do what OP says he did.

Stu

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

On Jan 20, 11:37*am, "wmscot...[at]yahoo.com" <wmscot...[at]yahoo.comwrote:
- quote -

Your CORRECTION statement is stil confusing. The trust's trustee
distributes the taxability of iincome and corpus via its K-1s,
whether the money is actually distributed to the beneficiary or not.
If you never issued K-1s before, you didn't distribute anything (tax
liability or money) yet, and the trust, not the beneficiaries, has
paid taxes on all the income and gains. But, you said, the
"distributions were reinvested in the trust". This implies that the
money was taxed to the beneficiairies (distributed) who reinvested
(did not withdraw ) it in the trust. That requires K-1s to each
beneficiary

Are the age 21 distributions ourt of the beneficiary's share of the
trust corpus, or just the income, and is even that discretionary? It
is important to determine if you are dealing with one multi-
beneficiary trust, or is each beneficiary's share a separate trust.
If you wrote the trust you must know the intent of the grantor.

ed

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

Paul Thomas, CPA wrote:

- quote -

Are you suggesting that a beneficiary can be required to acknowledge
receipt of K-1 income and pay tax on it without actually receiving any
money? Sorry, I may have mis-read and/or misunderstood your post.
Joe

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

On Jan 20, 11:31*am, "Stuart A. Bronstein" <spamt...[at]lexregia.comwrote:
- quote -

**CORRECTION**
I mis-spoke; its actually a Complex Trust (I wrote the actual wording
of the Trust); in that, distributions are to be re-invested into the
Trust, and there will be no distributions to any of the Beneficiaries
until each turns 21. My apologies for the confusion!!!

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

"Paul Thomas, CPA" <paulthomascpapc[at]bellsouth.net> wrote:
- quote -

In my experience trust documents seldom if ever specify who gets K-
1's and when. They do specify if a beneficiary is required to get a
distribution or whether distribution is discretionary.

In OP's case it appears that a distribution is discretionary, and as
a result the income would be taxed at the trust level - unless it's a
grantor trust, which is unlikely.

So why should they get K-1's for income they are not taxed on?

(That said, depending on the amount of income, the tax might well be
less to the beneficiaries than the trust on the same income. But
that wasn't the question that was asked.)

Stu

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

On Jan 20, 9:22*am, "wmscot...[at]yahoo.com" <wmscot...[at]yahoo.com> wrote:
- quote -

I suggest you read the Trust document and then the instructions for
form 1041 as regards K-1s, at least. But, basically, you must issue a
K-1 to anyone to whom you distributed income. You must also determine
if the trust is separatae for each beneficiary, or a common trust with
several beneficiaries. If you do not distribute all the income to the
beneficiaries it is not a Simple Trust, the only difference being the
amount of the Exemption, and which box to check on the 1041, and the
trust directions. From your questions I fear you have *not* filed the
1041 correctly each year and you need a professional.

ed

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

<wmscott63[at]yahoo.com> wrote
- quote -





Yes.

It's not that the money was paid out or not. The wording of the trust
documents dictate if the income is to be allocated to the beneficiaries
(reported on a K-1) or if it is to be taxed at the trust level.



--
Paul A. Thomas, CPA
Watkinsville, Georgia

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

I am the Fiduciary for a Simple Trust, and have correctly filed a 1041
each year, with copies sent to each of the other two co-Trustees.
This is basically a single Fidelity mutual fund that just gets
Dividends and ST/LT capital gains each year.

In 2007, one of the beneficiaries turned 21, so we completed a K-1 for
that beneficiary.

My question is, if the income for the Trust is *not* distributed to
the beneficiaries in a given year, but remains reinvested within the
Trust's mutual fund, must the Beneficiaries receive a K-1 anyway? I
have not done this in the past. Thanks.

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >