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I am a beneficiary of a revocable (bypass trust). I receive…

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I am a beneficiary...

I am a beneficiary of a revocable (bypass trust). I receive a set amount each month of $4,000 dollars. Am I suppose to file taxes and am I liable for payment on said taxes? I have been filing annually on all monies I receive because in the beginning I was told we needed to file???

Accountant's Assistant: Which tax year is this for?

Since 1993 through current..2017.

Accountant's Assistant: Anything else you want the Accountant to know before I connect you?

My children also are beneficiaries and I would like to clarify this issue.

Submitted: 2 months ago.Category: Tax
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Answered in 1 minute by:
5/27/2018
Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 2 months ago
Chad EA, CDFA®, CFP®
Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional
Category: Tax
Satisfied Customers: 2,775
Experience: IRS Licensed Enrolled Agent, CDFA ® CFP ®, MBA
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Hello!

My name is***** will assist you today.

Please give me one moment while I review your question and type my initial response

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Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 2 months ago

When a revocable trust passes income directly to the beneficiary, the beneficiary who receives the income will claim the income on their tax return and pay taxes, if necessary on the distribution.

Please let me know if you have any follow up questions.

Thank you

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Customer reply replied 2 months ago
What makes it necessary. Please give me an example.
Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 2 months ago

When income is generated, the income is subject to tax. Either the trust pays tax or the beneficiary who receives the income pays the tax.

Since the trust pass the income to the beneficiary. The beneficiary pays the taxes.

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Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 2 months ago

If the trust retained the income, the trust would pay the tax. Trust generally pay tax at a much higher rate then individuals. If the trust paid the tax and then passed along the income, you would receive less then what you are currently receiving.

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Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 2 months ago

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Thank you!

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Customer reply replied 2 months ago
Please do not be offended by my lack of response(s). Just know that I appreciate your quick resonse, however, you only said one thing......essentially you said that I need to pay taxes on the amout over and above the percentage which is allowed by said trust to be distributed to me. Tradtionally the amount is set at approximately 4% of the income generated by the Trust. Example: if it generates 10%, I would have to pay taxes on the additional 6%. Correct?
Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 2 months ago

That is actually not quite what I said.

You pay taxes on income you receive from the trust. If the trust retains the income the trust pays the taxes in the year the income is generated.

If you receive only 4% of the income generated by the trust, then you will only be taxed on the 4% that you receive.

The trust would pay income on the other 6%, IF the trust retains the income.

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