• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

Parman & Easterday

Oklahoma Estate Planning Attorneys

Call Now: (405) 843-6100

Attend an Education Program-OK
  • Home
  • Our Firm
    • About Our Firm
    • Attorney and Staff Profiles
    • What Our Clients Say
  • Estate Planning
    • Asset Protection
    • Estate and Gift Tax Figures
    • Estate Planning Services
    • Family-Owned Businesses & Farms
    • Financial Planning Assistance
    • IRA and Retirement Planning
    • Legacy Planning
    • LGBTQ Estate Planning
    • Pet Planning
    • Powers of Attorney
    • Probate
    • SECURE Act
    • Special Needs Planning
    • Trust Administration and Probate
    • Young Families
  • Elder Law
    • Coping With Alzheimer’s
    • Elder Law
    • Emergency Medicaid
    • Guardianship & Conservatorship
    • Hospice Care
    • Medicaid Planning
    • Veteran’s Benefits
  • Resources
    • Asset Protection Worksheet
    • DocuBank
    • Elder Law
      • Elder Law & Medicaid Definitions
      • Elder Law Reports
      • Elder Law Resources
        • Edmond Elder Law
        • Oklahoma City Elder Law
        • Overland Park Elder Law
        • Yukon Elder Law
      • Medicaid
      • Nursing Home Resources
    • Estate Planning
      • An Overview of Estate and Gift Taxes
      • Estate Planning Checkup
      • Estate Planning Definitions
      • Estate Planning Reports
        • Advanced Estate Planning
        • Basic Estate Planning
        • Estate Planning for Niches
        • Trust Administration
      • Incapacity Planning Definitions
      • Is Your Estate Plan Outdated?
      • Top 10 Estate and Legacy Planning Techniques
    • Free Estate Planning Worksheet
    • Frequently Asked Questions
      • Alzheimer’s FAQs
      • Asset Protection Planning
      • Estate Planning
      • Elder Law
      • Frequently Asked Questions for Families Without an Estate Plan
      • Inheritance Planning for Minors
      • Legacy Wealth Planning
      • LGBTQ Estate Planning
      • Medicaid Planning
      • Nursing Home Asset Protection
      • Probate
      • Trust Administration
      • Trust Administration & Probate
      • Wills and Trusts
    • Newsletters
    • Probate and Trust Administration
      • Bereavement Resources
      • How to Know if You Need Extra Help With Your Grieving
      • Loss of a Loved One
      • Probate Checklist
      • The Mourner’s Bill of Rights
      • Things You Need To Do When a Loved One Passes Away With a Trust
      • Things You Need To Do When a Loved One Passes Away With a Will
      • Trust Administration & Probate Definitions
    • Probate Resources
      • Midwest City Probate
      • Moore Probate
      • Oklahoma City Probate
      • Overland Park Probate
    • Published Books
    • Pre Consultation Form
  • Communities We Serve
    • Edmond
    • Midwest City
    • Moore
    • Norman
    • Oklahoma City
    • Yukon
  • Reviews
    • Our Reviews
    • Review Us
  • BLOG
  • Contact Us
Home » Asset Protection » Tax Reporting with Trusts

Tax Reporting with Trusts

October 20, 2021 by Courtesy of Parman and Easterday

Grantor trusts are trusts which are income taxed to the “substantial owner” of the trust. Usually, the substantial owner is otherwise known as the “grantor” or “trustor.” Nongrantor trusts are trusts which are not grantor trusts. But, what is the tax reporting for grantor and nongrantor trusts?

This is the second in a three-part series on the taxation of trusts. The first part reviewed how a trust can be “substantially owned” by someone, i.e., what is commonly known among Estate Planning or Trusts & Estates attorneys as a “grantor trust.” It also looked at the advantages of using a grantor trust. Here is a link to the first article in the series. This second article in the series examines the Taxpayer Identification Number (“TIN”) which trusts, including grantor trusts, should use. The third article in the series will look at the taxation of nongrantor trusts.

Often, there is confusion regarding how a trust or a subtrust may report income and the TIN which should be used. Treasury regulations spell this out quite clearly. Treasury Regulation 1.671-4 is the relevant section.

Section 1.671-4(b)(2) provides that if a trust is treated as owned by one grantor or one other person, the trustee must either A) Furnish the name and TIN of the grantor or other person treated as the owner of the trust and the address of the trust to all payors for the taxable year, or B) Furnish the TIN of the trust and address of the trust. Of course, the latter method would also be used if the trust is a nongrantor trust.

A grantor of a trust is spelled out in Sections 671 to 677. For example, the power to revoke is listed as a power making a trust owned by the grantor under section 676. Under Section 678 someone other than the grantor may be treated as the owner of the trust for income tax purposes. Under Section 678, someone other than the grantor would be treated as the owner of the trust if they had the power to vest the corpus or income of the trust in themselves (i.e. a general power of appointment), or if they previously had such a power and they retained other powers under sections 671 to 677. There is an exception if the original grantor still is considered the owner of the trust. (Of course, upon the grantor’s death, the grantor is no longer considered the owner of the trust.)

Let’s look at two quick examples.

Example 1: Mary has a revocable trust. The trustee of Mary’s trust (who might be her or might be someone else) wants to use Mary’s TIN (which is her social security number). This is appropriate because Mary has the power to revoke the trust and is the owner pursuant to section 676. If the trustee preferred, they could choose to use a separate TIN for the trust.

Example 2: Upon Mary’s death, her trust sets up a subtrust for John. Under the subtrust, John has a right to withdraw the assets and income from the trust. This type of trust is commonly referred to as an “Access Trust” or a “Divorce Protection Trust.” Since John has a right of withdrawal and Mary is dead, John is considered the owner pursuant to Section 678 of the Code. The trustee of John’s subtrust may use John’s TIN (which is his social security number) as the TIN for the trust. If the trustee preferred, they could use a separate TIN for the trust.

If the trustee chooses to use the substantial owner’s TIN, the income would go directly to the substantial owner’s tax return and there’d be no need for a separate tax return for the trust. If the substantial owner isn’t the trustee, the trustee would need to provide the substantial owner a statement showing all items of income and deduction and other information which might be necessary for the substantial owner to take into account in computing their taxable income.

The next article in the series will examine the taxation of nongrantor trusts.

Stephen C. Hartnett, J.D., LL.M.
Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128
www.aaepa.com

  • Author
  • Recent Posts
Courtesy of Parman and Easterday
Latest posts by Courtesy of Parman and Easterday (see all)
  • Business Succession Planning May Be Easier than You Think - May 25, 2022
  • What an In Terrerem Clause Can Do for You - May 18, 2022
  • Let’s Talk about Trusts…and Taxation - May 11, 2022

Filed Under: Estate Planning, Legal Education Tagged With: attorney, consumer, grantor trust, planning

Other Articles You May Find Useful

Business Succession Planning May Be Easier than You Think
Will My Family Pay Inheritance Taxes?
What an In Terrerem Clause Can Do for You
probate
Five Ways a Trust Can Be Better Than a Will
Let’s Talk about Trusts…and Taxation
QTIP trust
Remarriage Can Create Estate Planning Concerns

Primary Sidebar

Parman & Easterday, LLP

DOWNLOAD OUR FREE ESTATE PLANNING CHECKLIST

SUBSCRIBE TO OUR BLOG

Follow Us

  • Facebook
  • LinkedIn
  • Twitter
  • YouTube

Where We Are

OKLAHOMA CITY, OK
13913 Quail Pointe Drive, Suite B
Oklahoma City, OK 73134
Phone: (405) 843-6100
Fax: (405) 917-7018

MAP

parman_sidbr_map

Office Hours

Monday9:00 AM - 5:30 PM
Tuesday9:00 AM - 5:30 PM
Wednesday9:00 AM - 5:30 PM
Thursday9:00 AM - 5:30 PM
Friday9:00 AM - 12:00 PM

Footer

footer-logo

The information on this Oklahoma Law Firm website is for general information purposes only. Nothing on this or associated pages, documents, comments, answers, emails, or other communications should be taken as legal advice for any individual case or situation. This information on this website is not intended to create, and receipt or viewing of this information does not constitute, an attorney-client relationship.

Privacy Policy | Contact Us | Disclaimer | Site Map | Powered by American Academy of Estate Planning Attorneys


© 2022 American Academy of Estate Planning Attorneys, Inc.
  • Facebook
  • LinkedIn
  • Twitter
  • YouTube