Quail Valley, CA asked in Tax Law and Estate Planning for California

Q: Is it legal to ask a beneficiary to claim money from distributions he never received, for taxes, through Schedule K-1s?

The fiduciary and his accountant both said it is “standard practice” even though I never received any distributions from the trust, he wants me to amend my taxes for 3 years back and say I did get money and then pay the taxes from my pocket. There is no information that I will receive the money in the future, as I believe it is not there.

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1 Lawyer Answer
Bruce Adrian Last
Bruce Adrian Last
  • Estate Planning Lawyer
  • Pleasant Hill, CA
  • Licensed in California

A: Quail Valley:

From what you describe, something does not sound right. In some instances a trust or estate will "pass though" tax liability to the beneficiary but only where that liability is connected to a distribution. For example, if a trust makes a distribution to a beneficiary that consists of income and capital gains earned by the trust, it may pass the tax liability to the beneficiary. This is done because the beneficiary, as a general rule, has a lower tax rate than the trust.

So, it indeed seems odd that the trustee would ask you to state that you received a distribution if you did not. I am also concerned that you do not believe there is money in the trust to make a distribution. Beneficiaries who are entitled to distributions are also entitled to a yearly accounting. (Even if the trust instrument, to which you are entitled a copy of, waives the accounting the trustee is still required to provide certain financial information.)

I strongly suggest that you speak with an attorney about this as soon as possible. If there is "monkey business" going on, the law provides you with the ability to remove and replace the trustee, and hold the trustee accountable. However, without reviewing all relevant documents and communications it is not possible to provide a better picture of what is going on.

If you do not know where to find an attorney, your local county bar association may provide an attorney referral service which provides a consultation at a small or no fee.

Best of luck.

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