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What Are Your Tax Responsibilities As A Trustee?

12/29/2022 | Trust Administration

When you have been named a trustee in a Woodland Hills trust or California trust, you are expected to oversee matters that can be a very complicated administration process. Part of this is understanding the tax implications of a trust. Taxes in general can be very complicated, especially if your tax knowledge is limited to dealing with your own federal and state income taxes. There are a number or resources, however, to help you understand this process.

Once beneficiaries begin to receive disbursements from a trust, that money qualifies as taxable income. According to the website for the Internal Revenue Service, you as the trustee (the IRS refers to you as the “fiduciary”) have a role in the trust’s beneficiaries knowing how much tax they are expected to pay. Their tax liability is based upon the amount of income they received through the trust. Thus, you are required to figure out the trust’s accounting income in order to determine what the income distribution deduction will be. That deduction what is used to determine how much tax beneficiaries are required to pay as part of their annual return. You can to this by completing a Schedule B (IRS Form 1040).

Once this information has been determined, you will then complete an IRS Form 1041. This is the document that explains to the beneficiaries how much tax they must pay relative to their income distributions from the trust.

While these processes and forms may be new to you, an attorney may have extensive knowledge of this and any other tax obligations you have as trustee. Such a resource can help both you and the trust’s beneficiaries from experiencing any tax issues that could arise during the execution of the trust’s administration.