Estate Planning Tip: Grantor Trust Information Reporting Requirements

Trustees of grantor trusts need to be aware of additional expenses associated with meeting information reporting requirements.

Grantor trusts are disregarded for tax purposes and are commonly used in many estate plans, but they can be confusing. Many trustees believe that since the trust is disregarded for tax purposes it does not have any information reporting requirements. However, the trustee is required to report the items of income, expense, and credit to the IRS and to the grantor of the trust.

Man Filling out Tax Form

The most common way of meeting this information reporting requirement is to file a “skeleton” IRS form 1041 with an attached statement showing the relevant tax information of the trust.  The returns are filed with the taxing authorities and the attached letter is given to the grantor.

Some trustees may be allowed to use alternate methods. However, each alternate method requires the trustee to furnish a statement to the grantor showing the income and expense activity of the trust. The trustee should be aware of the additional expenses associated with satisfying its information filing requirements at the time the estate planning technique is discussed and chosen.

Alan J. Pecora, CPA, Esq. is a principal in our tax department with more than 22 years experience in the estate & trust area. Alan joined Insero & Co. in 1999 after practicing with various law firms. He concentrated his law practice in the areas of estate & trust administration and tax law. Alan is also a member of the Estate Planning Council of Tompkins County. Alan holds a Bachelors degree in business administration with a concentration in accounting from St. Bonaventure University. He obtained his law degree from Seton Hall Law School. Alan is a Certified Public Accountant in New York, a member of the Monroe County Bar Association, Trust & Estate Section and a member of the Estate Planning Council of Rochester. Contact Alan at 585-697-9612 or alan.pecora@inserocpa.com.

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