AboutJohn Stancil, CPA Expertise I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I teach tax and accounting at a small church-related college. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a part time tax practice for over 30 years. I am a member of the AICPA, National Society of Tax Professionals, and the Institute of Management Accountants.
Experience I hold a doctorate in Accounting, and four professional certifications: CPA, CMA, CFM, and CIA. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I write a monthly tax column for the local newspaper.
Expert: John Stancil, CPA Date: 7/18/2008 Subject: gift taxes / trust
Question I was recently made trustee of a trust created for a living elderly friend. Essentially, his assets will be transferred into the trust and I will administer it for his benefit while he is alive. There is a clause in the trust document which makes this trust irrevocable. The trust attorney who drew the documents says that the trust is a grantor trust since the settlor is also the beneficiary. Will there be any gift taxes due on my friend's assets which are transferred into this trust? Will I report the income on his individual tax return? Thank you.
Answer Ann,
Thanks for your question.
This is not a gift situation, so you do not have to worry about gift taxes. The transfers for his benefit are not taxable income.
You will have to pay tax on the income earned by the trust assets. Most likely this will be mostly interest, dividends, and capital gains if you sell any stocks or similar assets.
There are two ways to handle the income. You can have the trust pay the income tax, or your can have the income paid by your friend on his 1040. When you complete the trust income tax return, Form 1041, the K-1 can indicate that the tax is to be paid by him rather than the trust.
