Q: Who pays thetax on income received to House in a family trust?
Father put house into trust with me and sister as trustees and now has passed. There is income paid to the house so it pays the mortgage $500 in $500 out. Does the house count it as income or would me and my sister take care of it on our taxes? The trust has an IEN tax number already?
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A:
You need to review this with a CPA, but most likely the trust became irrevocable when your father died and is, therefore, a separate taxpayer that is now obligated to file annual income tax returns the same as you are. As such, the income "belongs" to the trust and is reportable on its tax return.
The trust also is entitled to deductions, one of which is amounts distributed to beneficiaries. Accordingly, if all of the trust's otherwise taxable net income is distributed to you, then it will have no taxable net income. Instead, it will provide information reports to you and your sister as to how much trust-sourced income should be reported on your individual tax returns.
You should have a CPA helping you with this to ensure that is is being done correctly. You should have an attorney helping you with the legal aspects of trust administration.
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