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Are You Filing a Tax Return for Your Trust?

Since Kimbrough Law was founded in 2012, we have created more than 300 irrevocable trusts.

Irrevocable trusts are incredibly valuable estate and life planning tools. They can secure assets. They can give clients’ children the tools needed to take care of the parents. They can efficiently and economically transfer their assets to the children after the clients’ deaths, without having to go through probate.

Irrevocable trusts are also taxable. If the trust has a certain amount of income, an income tax return is to be filed.

When I launched Kimbrough Law, I realized that trusts were foreign to most laypeople, so, as a tax lawyer, I thought it would make sense for me to prepare the income tax returns for the trusts I created. And I did. However, after a couple of years, as my firm grew and I became busier, I stopped.

But now, I find myself spending more and more time explaining the workings of the tax law to many of my firm’s clients. And it’s not just clients who have questions. People who do tax work for a living, people like accountants and even CPAs, are coming to me with questions about tax law as it relates to trusts.

All these questions made me wonder whether clients with trusts had been filing tax returns for the trusts. So, I decided to change my mind and begin preparing trust returns again.

If you are a current or former Kimbrough Law client with a trust, or you’re a trustee of a trust for someone you love, give us a call and we’ll help you with the tax return for the trust.

In the meantime, here are some tax-related points to consider.

  • If your trust has $600 in income in a year, you are required to file an income tax return.

  • Basically, the trust’s fiscal year is the calendar year, so the return is to be filed by April 15 of the next year.

  • If you make no distributions during a year, the trust will pay the tax on the income. However, trust tax rates are quite high on low income, usually higher than the beneficiaries’, so distributions (which carry out the income) to the beneficiaries with the lowest tax rate are usually prudent.

  • Usually, you will receive your trust’s Form 1099s in January. After January, you will have about 2 1/2 months to file your tax return. If you have not made the needed distributions, you will have until March 5 to make a distribution in order to treat it as if it were made during the previous year.

If you need help determining if a trust is right for your situation or if you need assistance filing your current trust's tax return, just give Kimbrough Law a call at (706) 850-6910.

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