Dad had a Revocable Living Trust (no spouse) and when he passed away it became Irrevocable. I obtained an EIN for the new Irrevocable Trust. His Trust designated that it be divided into four equal shares for his four children, with two children being distributed outright and the other two children's shares to be held in Trusts designated as Special Needs Trusts. We obtained EINs for the two Special Needs Trusts. I gave all info to my accountant to prepare the 1041 tax returns but he needs to know specifically what to list as "Type" of Trust. Apparently, if they are Complex Trusts then the trust gets taxed. If they are considered "Grantor Type Trusts" then they are taxed on the individual's tax return. So how do we determine the correct tax type of the Special Needs Trusts? There is nothing in the Trust document to address this issue. Any information you can provide is appreciated.
If your accountant can't answer this question for you, you need to find another accountant. By definition, Special Needs Trusts are not required to pay out all of the income generated. Therefore, they are complex trusts.
in general, the only grantor trusts are those where the grantor is still alive. You describe a situation in whihc the grantor passed away.
Your description of the types of trusts is inaccurate.Grantor trusts are taxed to the grantor.
in most other trsuts situations, the person who gets the income gets the tax. If not one gets income the trust pays tax.
However, this does not sound like your accountant knows anything about trusts and you should go elsewhere..
The answers on this discussion board are general in nature and NOT intended as legal advice. Responding to questions does not constitute an attorney-client relationship. Always see a lawyer about your individual situation
Find a tax preparer fully conversant with fiduciary income tax.
It is not a choice between complex and grantor trust
characterization. It is between complex and simple. That distinction affects what deduction is allowed (600$ or 100$).
Income is taxed to the Trust unless it is distributed to a beneficiary. If it is distributed, then the beneficiary reports it on his/her Return.
Also, there really was no need to obtain two added EINs. There is one Trust (though there are two sub trusts) so one EIN is sufficient.
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