The trustee is required to obtain a W-9 to verify grantor’s taxpayer identification number. This method is most commonly used with revocable trusts which are also grantor trusts for income tax purposes. The trustee then files Form 1099s showing the trust as the payor, and the grantor as the payee, of trust income.
How is the income that is taxable to the grantor of a grantor type trust reported?
A: Trusts must file a Form 1041, U.S. Income Tax Return for Estates and Trusts, for each taxable year where the trust has $600 in income or the trust has a non-resident alien as a beneficiary. Thus, the grantor/individual would pay the total tax liability upon the filing of his return for that taxable year.
How is income in irrevocable grantor trusts taxed?
If an irrevocable trust has its own tax ID number, then the IRS requiresthetrust to file its own income tax return, which is IRS form 1041. During the lifetime of the grantor, any interest, dividends, or realized gains on the assetsof the trust are taxable on the grantor’s 1040 individual income tax return.
How are 1099s issued to a grantor trust?
So, there are two sets of 1099s—the payor, if it is a brokerage account or a bank account, is issuing a 1099 to the trustee. The trustee turns around and issues 1099s to the grantor. So, you might have 10, 11, 12 1099s coming in or K-1s coming in and then you turn around and you issue 1099s to the grantor.
Where does the grantor name go on a 1099?
This is the grantor’s name, and then this is the address of the trust. All that information causes the 1099 or the K-1 to go out directly in the name of the grantor. So, we avoid all of that otherwise reporting that we have to do.
Do you have to report a grantor trust on your tax return?
In that situation, if they are not a trustee, they are not a co-trustee, we have to provide them with sufficient information that says, you have to report this on your income tax return. These are what these items represent, and so, it is a good bit of work. So, I come away from this saying, I am not sure that the 1041 method was the worst method.
