Taxes on an Irrevocable Trust

[Shah]

What is the name of your state? New York state, New York City

An Irrevocable Trust was opened for a minor which I am the Trustee of. It was opened by my mother only, not my father. Does mom pay the taxes by filing a separate tax form from the rest of my father's tax filings? Are the tax payments taken out of the Trust?

I'm sorry, I have too many questions with the Trust.

After mom passes I am not sure how to go about with the Trust. Do I go to the bank it is opened under with a death certificate and anytime the minor requires funds from the Trust which will be spent according to the Trust's rules, how do I go about it?

Thank you.

 

[BarbaraRodgers]

taxes on irrevocable trust

State= New York

Hi. I hope I can help you. First ask yourself whether you really are dealing with an irrevocable trust, instead of a trust that does not really exist until a person dies.

An irrevocable trust is a trust set up by a living person that goes into legal effect right away although it may not be funded (have any money in it) until the person dies. If there is an existing bank account that is called something like "Irrevocable Trust for benefit of minor child under agreement dated ____, Mary Smith grantor, Sally Smith trustee" then you almost certainly have an irrevocable trust.

So the question regarding taxes is - does the trust have money in it now while your mom is still alive? If it does not, there will be no taxes due.

If there is money in the trust now, the trust is treated as a separate "person" for tax purposes, that is, it separate from both your mom and your dad.

If the money in the trust earned less than $600 in interest or dividends in the tax year (see last paragraph), then no income tax is due to the federal government, and no income tax is due to the state of NY. The trust does not have to file any tax returns at all if less than $600 was earned in the tax year.

If the money in the trust earned $600 or more, than you, the trustee, must act foir the trust and file a "Fiduciary Tax Return" to be sent to the federal government and another fiduciary tax return to be sent to NY state. I believe you must obtain a federal tax identification number for the trust. You do not use either your social security number or your mom's. The federal form is Form 1041. Even if you have to file the forms, this does not necessarily mean that the trust will pay any taxes. There are deductions available, especially if the income has been paid out to the beneficiary, but I cannot go into more detail here.

TAX YEAR: The tax year for the trust is not necessarily the calendar year. You can decide on a different tax year for the trust. You can chose the tax year that starts on the day the trust was created and continues for a year after that. If you do that, the tax return is due four months after the close of the trust's tax year.

 

[Shah]

Thank you for that detailed reply

Hi Barbara and thank you for that detailed reply.
I will give mom the information. To answer your questions as well, yes mom has placed the life insurance policy she was beneficiary to in the Irrevocable Trust. According to mom's lawyer, who really didn't explain anything to us very well, it is an Irrevocable Trust. At first the moneys was placed in an Annuinity with mom's Bank, then the Trust was drafted. We took a copy of the Trust, the Bank sent paperwork to the Insurance company and it is now an Irrevocable Trust. I'm going to assume if moneys needs to be used from this Trust for the benefit of the minor we go to that Bank and withdraw money?
Thank you much for all that information. It was of great help to me.