Redwood City, CA asked in Estate Planning for Michigan

Q: I have a question pertaining to a trust and possible tax burden against that trust.

My mother recently passed and had Annuities with an insurance company. The annuities are described in the trust as being for all of us. In dealing with the insurance company we were trying to determine if the trust was a pass-through trust or not and if we (the 4 of us) would be able to individually take our 1/4 of the payout from the annuities as lump-sum or 5-year deferred payments (of course to try to decrease the tax burden if possible). The insurance company is saying that the entire payment of the annuities will need to be made to the Trust. Ok, that's the back story. The real question is around the tax burden of the annuities. About 1/2 the annuities moneys is taxable. Is the tax burden for that portion the Trusts burden or the burden of each recipient? And if it's the recipient's burden, is there any liability held by the Trust if one of the recipients decides to *not pay their share of the taxes on the money they've received? Thanks in advance. The Trust is established in Mich

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1 Lawyer Answer
Jay E. Burrows
Jay E. Burrows
  • Estate Planning Lawyer
  • Shelby, MI
  • Licensed in Michigan

A: I think the annuity will have to be paid to the trust. However, if the trust distributes monies to the 4 of you during the same income tax year, the taxes on the annuities will pass through to the 4 of you. The trust must file a tax return to do this but the trust likely would have no tax liability itself.

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