Should a Living Trust Receive a 1099?

By Kay Lee

Living trusts are a popular tool in estate planning as individuals are able to retain ownership rights over assets during their lifetime, but facilitate the transfer of those assets upon their death. Consistent with the administrative ease of living trusts, there are no regular tax statements; however, the underlying assets in the trust may trigger certain reporting requirements.

Living Trust Basics

A living trust is an estate planning tool that allows an individual to transfer assets outside of the probate system during his lifetime. The individual creating the trust is called the trustee. There is little formality to establishing a living trust other than a written agreement or declaration of the trustee of the intention to create a trust. By avoiding probate, costs are lower to administer the trust and the transfer is quicker since it is administered privately rather than through the judicial system. Moreover, the trustee retains control over his assets during his lifetime.

1099 Basics

IRS Form 1099 reports the details of certain business transactions that may have tax consequences for either the payer or the payee, such as interest or retirement distributions. These forms are typically sent by the individual or organization that made the payment and the recipient of these forms is the individual who received the payment. Form 1099 also includes information regarding the amount involved in the transaction, taxpayer identification numbers, date of the transaction and type of business transaction being reported.

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Tax Forms for Living Trusts

Living trusts are treated the same as grantor trusts, which means they are ignored for tax purposes during most tax years. Accordingly, a living trust will not receive a Form 1099 for trust activities. Instead, the underlying assets in the trust typically dictate whether a Form 1099 is sent. For example, if an interest-bearing account pays interest that exceeds the threshold amount for sending a Form 1099, the holder of the interest-bearing account (i.e. a bank) would send the trustee a Form 1099.

Tax Implications of Living Trusts

Although living trusts are ignored for tax purposes until the death of the trustee, living trusts may have tax implications at the trustee’s death depending on the size of the estate. In order to be taxable, an estate must exceed a certain size -- as of 2012, this is $5.12 million.

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Taxes & the Advantages of Living Trusts

A living trust is a document that a person creates while he is still alive, which enables him to financially provide for the beneficiaries he names. The creator of the trust, or grantor, takes some of his property and gives it to a third party, known as a trustee. The trustee, a person chosen by the grantor, manages the property and distributes it to the beneficiaries, subject to terms outlined in the document that established the trust known as a trust agreement. A trust, if structured appropriately, can protect assets from creditors and can allow for assets to be transferred quickly without having to go through probate. What effect the trust will have on taxes depends on how the trust is structured.

Reasons to Implement a Living Trust

A living trust is a popular estate planning tool that is most often used to avoid court-supervised settlement of an estate, or probate. A living trust is attractive to many because it is "user-friendly." Unlike other trusts, the individual creating the trust, or grantor, can act as the trustee during his lifetime. The grantor can also make changes to the trust, giving him ultimate control over trust management. Under many circumstances, a living trust can be invaluable in securing your legacy

Can a Trustee Be Removed for Not Giving a Accounting?

A trust involves the holding of property for the benefit of another. The relationship is legal in nature; the person appointed to oversee the trust, known as the trustee, has certain responsibilities to the beneficiaries, or those entitled to receive under the terms of the trust. Part of this duty is to provide regular accounting and keep the beneficiaries reasonably informed.

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