Grantor Trust

[Mel7777]

I have a client whose uncle died with an estate plan setting up a grantor trust for my client.  The client has now received a 1099-composite in the name and EIN of the trust.  The client has control over all the assets and can do what they want.  So under the Grant Trust Rules, this is reported on the personal return.  Howevever, since it's reported in the Trust EIN, what is the best way to the IRS to map the 1099 to the personal return?  My thought is to add a disclosure for Schedule D as a "Preparer Note" in ProSeries.  Any other recommendations?

[sjrcpa]

"uncle died with an estate plan setting up a grantor trust for my client"

Are you sure about this? Usually it would be the uncle sets up a Grantor Trust with your client as the remainder beneficiary. When uncle dies it is no longer a grantor trust - it becomes a simple or complex trust and must filer a 1041. Sounds like your client is also the Trustee.

[Mel7777]

Thank you for your question.  I am new in the trust world and have taken several classes but this is my first run at applying textbook work to real world scenarios.  I really appreciate your help.  Allow me to elaborate...

Uncle dies with an trust in place.  Uncle's trust document establishes a GST Exempt Trust for the benefit of the Uncle's nephew, Bob. Bob has the full control over the GST Exempt Trust and it is for his benefit only and his decedents.  The document doesn't state a "grantor trust" but given he has full control of the assets (what is sold and what is purchased) so in review to of the Grantor Trust Rules, my thinking is that Bob's trust is a grantor trust.  Bob also mentioned several times it is a grantor trust (but I know the client doesn't always know the right terms).

What do you think about the GST Exempt Trust for Bob - report earnings on Bob's 1040? If so, what is the best way to avoid a matching error with the IRS given Bob's trust has it's own EIN and included on Bob's personal 1040 under his SSN.  Are the Preparer Notes sufficient?

Or would you recommend a different course of action for reporting? or other thoughts to consider?

[sjrcpa]

Does Bob the beneficiary have control over distributions?

Or Bob the Trustee can distribute to Bob the beneficiary? And I've never seen a Trustee without the power to buy and sell, although a grantor could prohibit that.

I think your GST Trust needs to file a 1041. To the extent of the trust income, if Bob received distributions from the Trust his K-1 will have income.

[Mel7777]

So interesting!  Thank you!

So the Uncles Trust set up the GST Trust for Bob.  Bob does have complete control over the GST trust (distributions, purchases, sales).

I am trying to get my head around this - if the GST Trust needs a 1041, then the capital gains are held in the trust, and income is subject to the tax rates of a trust.  Yet the whole idea is to do tax planning for a family and I'm feeling a bit lost as to how this actually helps a family plan for the future.  There's not likely an easy answer - but any suggestions on how to study this out would be welcome.  Thank you!

[sjrcpa]

"I'm feeling a bit lost as to how this actually helps a family plan for the future."

Maybe the uncle and his attorney had a plan.

Not everything is a tax decision either.

Maybe our resident Bob @BobKamman will provide his opinion

[Mel7777]

Thank you SJRCPA!!! 

As I am reading, I see this is a residual trust but that doesn't exclude it from being grantor trust but now since the Uncle has died, the Grantor is no longer in control.  Bob is not the grantor...

Again, HUGE thank you!  You often support so many questions and I just want to say a huge thank you!

[sjrcpa]

You're welcome.