Ask a Trust Attorney: Does My Trust Require a Separate Income Tax Return?

Does my trust require a separate income tax return?

The answer, as is true of so many of the questions we get, is – it depends.  It depends on what type of trust you have.

A revocable living trust is what’s known, under the Internal Revenue Code, as a grantor trust.  Your revocable living trust (also known as an RLT) uses your Social Security number (or either spouse’s Social Security number, in the case of a joint RLT for a married couple).  All income, gains, losses, depreciation, etc. pass straight through to you (or you and your spouse).  Therefore, there is no need to file a separate income tax return for your revocable living trust.

Irrevocable trusts, however, usually do require a separate income tax return.  You or your family may have an irrevocable trust as part of your long term planning for Medicaid, VA Aid & Attendance benefits, and certain other government benefits programs.  You may have a special/supplemental needs trust, an irrevocable life insurance  trust, a gifting trust, or a charitable trust.

You, your CPA, or other tax preparer would typically use IRS form 1041 to make the necessary income tax filing.  Per the IRS’s instructions for Form 1041, the irrevocable trust needs a separate tax return if the trust has:

  1. Any taxable income for the prior year;
  2. Gross income of $600 or more (regardless of taxable income); or
  3. A beneficiary who is a nonresident alien.

If you are the trustee of an irrevocable trust, you should contact your CPA well in advance of the tax filing deadline and discuss whether, in his or her opinion, a return should be filed.

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