Trust Tax Return Need to be Prepared?

[ETax847]

Client is the sole owner and beneficiary of a trust.  Client received a k1 for the trust.  Does a trust tax return need to be prepared or since she is the sole beneficiary, the k-1 can just be included on her individual tax return?

[Lion EA]

What type of trust? Are you saying she's the owner because it's a grantor trust? Get a copy of the trust document to start.

[ETax847]

It's a settlement trust.  From what I've read, "The trustee of a settlement trust is selected by the grantor, who is also the beneficiary because the trust is established with the beneficiary's own funds." 

Does that mean I should prepare a trust return? 

[Lion EA]

If it is a type of grantor trust, the transactions appear on the grantor's income tax return. For most types of trusts, the trust files Form 1041 and the state equivalent. Read the trust document and the IRS letter assigning an EIN, if any. You might need a conference call with your client and the lawyer who set up the trust. I have never worked with a "settlement trust." Don't forget to look at state law, too.

[ETax847]

Thanks for the prompt response and guidance!

[Randall]

Does the K1 have the client's ssn or a trust EIN?

 

[ETax847]

Trust EIN

[Roberts]

33 minutes ago, ETax847 said:

Trust EIN

Then you almost certainly need to do a trust return.

[Lion EA]

Get copies of prior year trust returns. Ask why they are not using the trust's prior preparer.

[Catherine]

9 hours ago, Roberts said:

Then you almost certainly need to do a trust return.

Almost but not positively.  I've seen these were all was reported on the individual, and the "trust return" was either nonexistent or had demographic info only and a disclosure that all income was claimed on return of John Q Smith ssn 123-45-6789.

Start with trust document and prior year returns.  Talk with lawyer who set it up, if needed.

[Roberts]

Can you provide an example where they got a TIN, moved assets under the TIN, you now have a 1099 or K-1 in your hand showing income associated with that TIN and a 1041 would be wrong?

OP said it is a settlement trust. A 1041 should IMO be prepared.

Instructing non-lawyers (like myself) to read legal documents seems fruitless to me. Especially if the goal is to uncover a remote instance provided for within the legal jargon. Ask the lawyer.

[ETax847]

Circled back with the attorney and a Trust Return is in fact the way to go.  Thanks to all who chimed in.

[Catherine]

9 hours ago, Roberts said:

Instructing non-lawyers (like myself) to read legal documents seems fruitless to me.

I'm mainly looking for items such as who the trustees are, who the beneficiaries are (see if those match what I've been given), and what *must* be paid out - or is it up to the trustee (simple vs complex).  Not the gobbledygook.

In this case it turns out a trust return needs to be done.  But I've seen trusts  that are beneficiaries of other trusts so they get a K-1, BUT it's a grantor trust and the check gets deposited to the grantor's personal account.  For those trusts, a demographics-only return with an attachment saying "all income reported on Form 1040 of Joe Smith 123-45-6789" does it.