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Irrevocable Grantor Trust

January 24, 2017 • TaxApprentice • Log In to Post Comments

A living trust that was converted to a an irrevocable trust in 2012.  The trust instrument indicated to treat the trust as a "Grantor Trust" for federal income tax purposes.  The grantor or owner of the trust passed away in June 2016.  Her primary residence was sold in November 2016 for $525k.  Since the trust is a grantor trust, a statement has to be created and no amount is being reported in the 1041.  What reporting need to be done on the statement?


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Do you mark "Grantor type trust on the 1041"? or is it a complex trust as the grantor already passed away?

 

TaxApprentice,

A living trust, by its nature is a grantor trust.  Additionally, many irrevocable trusts are also treated as grantor trusts.  A grantor trust typically does not require its own separate tax ID and does not file a separate income tax return unless someone other than the grantor is the trustee.  In that scenario, you file what looks like a blank 1041 with a statement indicating that the trust is a grantor trust, then you include a statement with the 1041 that reports all the income.  Most software programs should create the necessary statements.

Your situation is a bit different because the grantor passed away.  Upon the death of the deemed owner of a grantor trust, the trust ceases to be a grantor trust and is simply an irrevocable trust.  So, the trust in your scenario should file a regular 1041 for the short year starting on the grantor's date of death and ending on December 31, 2016.  You should not mark the "Grantor type trust" box on Form 1041.

 

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