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Post by racqueteer on Jan 19, 2023 17:08:03 GMT
I have a trust, but have a question about it. Not sure if anyone here can answer?
The trust states that it is both irrevocable and a grantor trust. I need it to be irrevocable; which seems to require a separate taxpayer ID and return. However, a Grantor trust uses the taxpayer's existing SS number and is supposed to be ok in this case. What I want to know is whether or not this trust is ok. Does anyone have any experience/insight as to this? I'm trying to get an answer from an elder-law person, but I really don't want to pay a few hundred dollars just to get a yes or no answer!
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Post by nobhead on Jan 19, 2023 17:45:35 GMT
I have a trust, but have a question about it. Not sure if anyone here can answer?
The trust states that it is both irrevocable and a grantor trust. I need it to be irrevocable; which seems to require a separate taxpayer ID and return. However, a Grantor trust uses the taxpayer's existing SS number and is supposed to be ok in this case. What I want to know is whether or not this trust is ok. Does anyone have any experience/insight as to this? I'm trying to get an answer from an elder-law person, but I really don't want to pay a few hundred dollars just to get a yes or no answer!
Your trust should be ok.
I have a grantor irrevocable trust and use my SS number. The only problem I had was getting the bank to accept my SS number for the checking account for the grantor irrevocable trust. The bank (Wells Fargo) was determined I had to get a separate taxpayer ID until I contacted a vice president of the trust department with the bank.
With the grantor irrevocable trust, I am responsible for all of the taxes of the trust and receive all of the income but not the capital gains of the trust. I had to go through my CPA to get the answer on the capital gains. This trust is in North Carolina and other states may handle capital gains differently.
Edit: I do not have to do a separate tax return on the trust but the trustees are required to furnish me the information from the trust required to complete my taxes. This eliminates the need to file an informational 1041 tax return for the trust.
Edit 2: See page 14 of this IRS document for optional method 1 for reporting trust income. This is what I use.
Optional Method 1. For a trust treated as owned by one grantor or by one other person, the trustee must give all payers of income during the tax year the name and TIN of the grantor or other person treated as the owner of the trust and the address of the trust. This method may be used only if the owner of the trust provides the trustee with a signed Form W-9, Request for Taxpayer Identification Number and Certification. In addition, unless the grantor or other person treated as owner of the trust is the trustee or a co-trustee of the trust, the trustee must give the grantor or other person treated as owner of the trust a statement that: • Shows all items of income, deduction, and credit of the trust; • Identifies the payer of each item of income; • Explains how the grantor or other person treated as owner of the trust takes those items into account when figuring the grantor's or other person's taxable income or tax; and • Informs the grantor or other person treated as the owner of the trust that those items must be included when figuring taxable income and credits on his or her income tax return. Grantor trusts that haven't applied for an EIN and are going to file under Optional Method 1 don't need an EIN for the trust as long as they continue to report under that method
From <https://www.irs.gov/pub/irs-pdf/i1041.pdf
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Post by racqueteer on Jan 19, 2023 18:55:49 GMT
Thank you, nobhead. That was my understanding of the situation as well, but those 'Guvment' people:
Don't seem to understand the rules completely, contradict themselves, and generate paragraphs of 'explanations' when a couple of CLEAR sentences would suffice.
Reference your statement of Optional Method 1... I THINK that means that the Trustee forwards the information on income to ME and then I file it as I would if it was my own income being generated. So profits (and losses) from investments and bank interest just go to MY bottom line. Yes?
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Post by nobhead on Jan 19, 2023 19:38:20 GMT
Thank you, nobhead. That was my understanding of the situation as well, but those 'Guvment' people:
Don't seem to understand the rules completely, contradict themselves, and generate paragraphs of 'explanations' when a couple of CLEAR sentences would suffice.
Reference your statement of Optional Method 1... I THINK that means that the Trustee forwards the information on income to ME and then I file it as I would if it was my own income being generated. So profits (and losses) from investments and bank interest just go to MY bottom line. Yes?
Short answer is Yes.
In my case the trust is in North Carolina and North Carolina statutes say that the capital gains must stay in the irrevocable trust but I pay the taxes on the capital gains. My CPA searched the statutes to find this. Your state may be different.
Mine is an income only trust designed to protect assets from Medicaid if the worst happens. It has a 5 year look back period for Medicaid purposes as you probably already know. My attorney told me I had to be paid all of the income from the trust or it would be deemed as additional contributions to the trust and it would start the look back period all over.
Edit: My Certificate of Trust has the following as part of the trust: The Trust is a grantor trust for income tax purposes and uses the Taxpayers Identification Number of the Settlor.
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Post by racqueteer on Jan 19, 2023 20:29:43 GMT
Thank you, nobhead. That was my understanding of the situation as well, but those 'Guvment' people:
Don't seem to understand the rules completely, contradict themselves, and generate paragraphs of 'explanations' when a couple of CLEAR sentences would suffice.
Reference your statement of Optional Method 1... I THINK that means that the Trustee forwards the information on income to ME and then I file it as I would if it was my own income being generated. So profits (and losses) from investments and bank interest just go to MY bottom line. Yes?
Short answer is Yes.
In my case the trust is in North Carolina and North Carolina statutes say that the capital gains must stay in the irrevocable trust but I pay the taxes on the capital gains. My CPA searched the statutes to find this. Your state may be different.
Mine is an income only trust designed to protect assets from Medicaid if the worst happens. It has a 5 year look back period for Medicaid purposes as you probably already know. My attorney told me I had to be paid all of the income from the trust or it would be deemed as additional contributions to the trust and it would start the look back period all over.
Edit: My Certificate of Trust has the following as part of the trust: The Trust is a grantor trust for income tax purposes and uses the Taxpayers Identification Number of the Settlor.
Hmmm... I assumed that the 'new' look back period would only apply to the stuff you added, and not to anything which was already past the five years. That might be too logical, however. ;-) Another thing to check; especially since I was intending to add to the trust. I'm not to five years yet, though.
So you can't have the your trust change value beyond capital gains? If the trust is irrevocable, it's supposed to be a separate entity which could, presumably, change in value, I would think. Very confusing...
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Post by nobhead on Jan 19, 2023 20:36:44 GMT
Short answer is Yes.
In my case the trust is in North Carolina and North Carolina statutes say that the capital gains must stay in the irrevocable trust but I pay the taxes on the capital gains. My CPA searched the statutes to find this. Your state may be different.
Mine is an income only trust designed to protect assets from Medicaid if the worst happens. It has a 5 year look back period for Medicaid purposes as you probably already know. My attorney told me I had to be paid all of the income from the trust or it would be deemed as additional contributions to the trust and it would start the look back period all over.
Edit: My Certificate of Trust has the following as part of the trust: The Trust is a grantor trust for income tax purposes and uses the Taxpayers Identification Number of the Settlor.
Hmmm... I assumed that the 'new' look back period would only apply to the stuff you added, and not to anything which was already past the five years. That might be too logical, however. ;-) Another thing to check; especially since I was intending to add to the trust. I'm not to five years yet, though.
So you can't have the your trust change value beyond capital gains? If the trust is irrevocable, it's supposed to be a separate entity which could, presumably, change in value, I would think. Very confusing...
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Post by nobhead on Jan 19, 2023 20:52:29 GMT
The trust can change value (up or down) from what was put in it. It is treated as separate entity but taxed to the individual since it is a grantor trust. Think I confused you on the capital gains. The capital gains, whether reinvested or not must stay in the trust in North Carolina. Your state may be different.
Example: PRWCX pays dividend of 1,000 and capital gain of 2,500. In my income only trust, the trustee pays me the 1,000 dividend and the capital gain of 2,500 stays in the trust (whether reinvested or not). I still have to pay the taxes on the capital gains even though I did not receive them. I pay taxes on everything that happens in the grantor trust using my SSN.
I asked my attorney did I HAVE to take the income from the trust if I did not need it. He told me that if I did not take it, it would be considered an addition to the trust and be part of the 5 year look back period or start the 5 year look back period if it had already passed.
It is confusing and I am not great at explaining it.
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Post by racqueteer on Jan 19, 2023 21:22:18 GMT
Yeah, I think I'm not explaining clearly... Let's say that I have a trust which contains a house. The five years have passed. I want to add i-bonds to the trust. If I do that we start a new five-year look back on the house as well as the i-bonds?
Alternatively: I've invested in stocks and set up for repurchase with dividends, etc. I don't sell anything. Tax issues?
Alternatively again: I've invested in rental property (or just in property) within the trust. Rental income must be taken? What if there isn't any (I have a scenario in which that might happen). Or I sell for a profit? What then?
Sorry, not trying to put you on the spot; just trying to clarify my questions/thinking.
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Post by nobhead on Jan 19, 2023 23:07:07 GMT
Yeah, I think I'm not explaining clearly... Let's say that I have a trust which contains a house. The five years have passed. I want to add i-bonds to the trust. If I do that we start a new five-year look back on the house as well as the i-bonds? Alternatively: I've invested in stocks and set up for repurchase with dividends, etc. I don't sell anything. Tax issues? Alternatively again: I've invested in rental property (or just in property) within the trust. Rental income must be taken? What if there isn't any (I have a scenario in which that might happen). Or I sell for a profit? What then? Sorry, not trying to put you on the spot; just trying to clarify my questions/thinking. This is only my opinion of how things work as my lawyer explained to me.
The five year look back period looks at everything you have given away whether to the trust or as gifts to relatives or others as of the date you apply for Medicaid care. The amount of I-bonds will count to a new 5 year look back but not the house since it was put in the trust over 5 years ago.
As a grantor trust, the individual pays all the taxes related to the trust activity (dividends, capital gains or losses) whether you receive them yourself or not. Mine is an Income Only trust that says I get paid the income. A trust can be worded however you want but I wanted the income.
If you transfer stocks to the trust, they would be part of the 5 year look back too. You (the grantor) would be responsible for all taxes of the trust whether you get the income or not. This would include dividends, capital gains distributed or capital gains and losses of anything the trust sells.
If you transferred the rental property to the grantor trust, you pay taxes on the net income whether you get the income or not. It would also count towards the 5 year look back. In my case, I transferred a commercial building to my trust. The wording in your trust should say if you get the income. If the trust sells it for a profit, you will be responsible for the taxes on the gain.
I do not know about the rental home not having income.
Hope this helps you some. Think I already told you that I know about most of this because I have been through it. In fact, I had to have 3 sessions with the attorney to understand it.
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Post by racqueteer on Jan 19, 2023 23:42:22 GMT
Yeah, I think I'm not explaining clearly... Let's say that I have a trust which contains a house. The five years have passed. I want to add i-bonds to the trust. If I do that we start a new five-year look back on the house as well as the i-bonds? Alternatively: I've invested in stocks and set up for repurchase with dividends, etc. I don't sell anything. Tax issues? Alternatively again: I've invested in rental property (or just in property) within the trust. Rental income must be taken? What if there isn't any (I have a scenario in which that might happen). Or I sell for a profit? What then? Sorry, not trying to put you on the spot; just trying to clarify my questions/thinking. This is only my opinion of how things work as my lawyer explained to me.
The five year look back period looks at everything you have given away whether to the trust or as gifts to relatives or others as of the date you apply for Medicaid care. The amount of I-bonds will count to a new 5 year look back but not the house since it was put in the trust over 5 years ago.
As a grantor trust, the individual pays all the taxes related to the trust activity (dividends, capital gains or losses) whether you receive them yourself or not. Mine is an Income Only trust that says I get paid the income. A trust can be worded however you want but I wanted the income.
If you transfer stocks to the trust, they would be part of the 5 year look back too. You (the grantor) would be responsible for all taxes of the trust whether you get the income or not. This would include dividends, capital gains distributed or capital gains and losses of anything the trust sells.
If you transferred the rental property to the grantor trust, you pay taxes on the net income whether you get the income or not. It would also count towards the 5 year look back. In my case, I transferred a commercial building to my trust. The wording in your trust should say if you get the income. If the trust sells it for a profit, you will be responsible for the taxes on the gain.
I do not know about the rental home not having income.
Hope this helps you some. Think I already told you that I know about most of this because I have been through it. In fact, I had to have 3 sessions with the attorney to understand it.
It does help, if only because it highlights the questions I need to ask!
"In fact, I had to have 3 sessions with the attorney to understand it." I can well believe it. Thanks to you, and perhaps with some luck, maybe I can get it down to only two!
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Post by Capital on Jan 20, 2023 13:22:30 GMT
racqueteer , both terms you are asking about relate to Trusts; however, in very different ways. A revocable trust is one that the Grantor can revoke and direct the assets distributed per his/her wishes. A irrevocable trust is exactly the opposite. A grantor trust is more of a tax difference. If the trust is a grantor trust the Grantor has retained enough control over the trust that the IRS does not consider it as a completed transfer. A revocable trust is by definition a guarantor trust. An irrevocable trust can be a guarantor trust if the Guarantor retains controls over the trust that will disqualify it as a completed transfer. There are certain situations in which a good attorney can created a failed irrevocable trust that will shield assets from the Guarantor's creditors while consolidating the tax of the trust in the Guarantor's form 1040 for simplicity and tax reduction. The tax rate schedules for trusts are very unfavorable. All that said you need guidance from a knowlegable attorney. I wish you good luck.
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Post by racqueteer on Jan 20, 2023 13:55:48 GMT
Thank you; both for the information and for the good wishes. There’s little doubt that this is going to be a pita!
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