How does the trust’s trustee report distributions to beneficiaries of a trust? My understanding is that the trustee must send each beneficiary a K-1 that shows their share of the distribution and they attach the K-1 to their revocable trust meaning return.
Does the trustee need to report anything to the IRS about the distributions? What form is necessary to do this? Revocable and irrevocable trusts are treated quite differently under U. The main reason for this disparity is that the assets of a revocable trust are considered the property of the grantor, while an irrevocable trust is treated as an independent legal entity that owns its assets. Creating a trust may carry unexpected tax consequences, some of which may be unfavorable. The factors that determine who is responsible for paying the taxes on trust income depends on the stipulations of the trust document and whether the grantor retains the right to revoke it. This involved 2 types of trusts: one was an irrevocable life insurance trust, the other was a revocable trust that became irrevocable at the grantor’s death.
The trust language gives the trustee discretion as to whether to distribute income and principal. So are you saying that even if the trust makes distributions of income that the trust has to pay tax on that income that it already distributed and then the beneficiaries would not have to pay the tax? I guess life insurance trusts commonly employ trusts that are irrevocable but treated as grantor trusts for income tax purposes. Irrevocable trusts, however, are useful in life insurance planning.