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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28081
Experience:  Taxes, Immigration, Labor Relations
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An individual set up an Irrevocable Family Trust, which was

Resolved Question:

An individual set up an Irrevocable Family Trust, which was established for the purpose of a life insurance trust for a second to die policy. The client has not decided to cash in the life insurance policy and distribute the proceeds to family members. To whom is this taxes - the TRUST or to the individual beneficiaries.
Submitted: 8 years ago.
Category: Tax
Expert:  Lev replied 8 years ago.

Irrevocable Family Trust is a separate legal entity and is required to file a tax return on the form 1041 - if it has any taxable income.


Unless trust documents have any limitations - generally - there is a choice - either having this income taxable to the trust, or

distribute the income to beneficiaries and report each beneficiary's share of taxable income on the schedule K-1 - - in this case it will be excluded from trust taxable income.


You may also distribute to beneficiaries only part of income and have the rest taxable for the trust.

You may choose to have the income being taxable for the trust and distribute to beneficiaries after tax funds or do not distribute at all.


The fact of distribution doesn't eliminate the filing requirements for the trust.


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