Discussion:Trust expenses paid by Trustee
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Michaelstar (talk|edits) said: | 2 February 2008 |
| This is an irrevocable trust set up by the grandparents and funded by the grandparents for a grandchild through annual gifts. At this time, the grandparents and not making any annual gifts to the trust. No current distributions are being made and all income is being accumulated at the trust level causing trust level taxes and accounting/tax prep fees.
The trustee (not the grandparents) is paying for all the taxes and tax prep fees outside the trust with his own funds. At this time, these are less than annual gift tax exclusion amount. Can the trust treat these payments made outside the trust as trust contributions and deduct the tax prep fees and state taxes on the 1041? I can find no authority where this can be done unless the trust reimburses the trustee directly. Am I correct? | |
RoyDaleOne (talk|edits) said: | 2 February 2008 |
| The trust owes the trustee the money, who's expense is it?
If the trust is going to reimburse the trustee, the trust can deduct the expenses on it return. The expenses paid by the truatee are a loan to the trust from the trustee. | |
| 2 February 2008 | |
| Actually, Michael, what you really want to avoid here is a reportable gift of future interest. If funds used to pay bills never hit the trust account you have a problem with the Crummey power and annual exclusion does not apply. I assume trustee is parent and document allows gifting by other than grandparents. I have a distaste for loans that carry no interest and will never be paid back. | |
Michaelstar (talk|edits) said: | 2 February 2008 |
| Dennis - good point on the Crummey power issue. Without adequate notice to the beneficiaries this can not be a completed gift to the trust. Yes, it is the parent who is the current trustee and the beneficiaries are very young - 8yrs old and younger. The document does allow gifting by other than the granparents. Without an actual transfer to the trust, there is nothing for the beneficiary to actually exercise any withdrawal right upon. All assets are invested in securities and there is no cash currently in the trusts.
The trustee would have no desire to set up loans and have the trust pay him back and I agree with you - phantom loans only cause problems - they will never be treated as true loans in the long run. What do you suggest? | |
| 2 February 2008 | |
| In this case you kind of have to pay him back, so parent gives the money to pay himself back, letters are sent, payback. (Deduction for trust in year of expense) Next year he gives back the money and puts in what's necessary to pay bills. Again letters are sent before bills are paid. Same money out of his pocket but i's and t's. ♫ | |
Michaelstar (talk|edits) said: | 3 February 2008 |
| Thank you Dennis. Looks like no short cuts with deemed contributions, taking the allowed deductions and simple journal entries on the books in order to do this correctly and protect the trustee. | |
Taxestaxes (talk|edits) said: | 15 February 2008 |
| Doing a trust return and just wanted some reassurance. its a complex trust set up only for the purpose of putting flowers on someones gravesite twice a year.....where would the expenses for the flowers be deducted? thats the only expense out of this account... | |
Taxestaxes (talk|edits) said: | 16 February 2008 |
| No, its just for purchase of flowers for their gravesite till money runs out......a little strange, I guess thats why it has confused me as to where to deduct the money spent each year on the flowers; seems like its distribution each year, as in a K1, but I wouldnt send that to the florists? :) | |
| 16 February 2008 | |
| If the trust is not covered by §642 there is no deduction. If it is the expense for flowers is a distribution deduction limited to $5 per gravesite. | |
Taxestaxes (talk|edits) said: | 16 February 2008 |
| Its not covered by that; its not a cemetery care; its a trust only for this one lady's grave; she wants flowers put on her grave twice a year; thats it; I understand now that there is no deduction; poor lady; she(the trust) will pay more out in taxes than what the flowers cost for her grave. | |
| 16 February 2008 | |
| Lord. I assume you don't have an attorney to consult on this one either. You might read something about your state's laws on perpetuities. | |
Taxestaxes (talk|edits) said: | 16 February 2008 |
| I think problem is that the lawyers dont know advice to give when it comes to tax situation? I have actually referred these trusts to someone else. BUt I still want to learn more about them to understand them. Why would you suggest reading the laws? Is something not right with this? My feeling is, maybe the money left should be invested and that way the interest is not taxed and trust paying out all this money to the govt? Anyway, I know I have alot more to learn when it comes to trust, but thats the way I see it? :) | |
| 16 February 2008 | |
| On another thread you suggest you are dealing with an ILT with a spouse beneficiary and apparently no Crummey letters and here you have a trust supposedly measured over no-one's life. These are things that make absolutely no sense. | |
Taxestaxes (talk|edits) said: | 16 February 2008 |
| Sorry, but thats what they are? One trust husband set up for life insur. policy that his work has on him; left to his wife? Second trust; lady had set up so that when she passed away, there was money to put flowers on her grave since she had no family; this was to be done as long as there was money there? Whether it makes sense nor not, thats what they are? Maybe I dont know all the details on the gentlemen that has the life insur., but after reading more, and talking with him, I think he did it thinking it would save him money, meaning he wouldnt have to show this 1099 r on his personal income; at least thats what he said he was told; maybe he is hiding something else, I dk. BUt for the flowers, that trust is plain and simple to understand? Thats what it for! | |
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