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Common questions about fiduciary grantor distributions in Lacerte

by Lacerte Tax 2023 Updated 9 months ago

Below are solutions to frequently asked questions about entering grantor trust distributions in the Fiduciary module of Lacerte. Refer to the Instructions for Form 1041 for more information about grantor trusts.

Follow these steps to enter a grantor trust return in Lacerte:

  1. Go to Screen 1, Client Information.
  2. Scroll down to the Miscellaneous Info section.
  3. In the Type of Entity field, select Grantor Trust from the dropdown options.
  4. Go to Screen 6, Beneficiary/Grantor Information.
  5. Enter all applicable beneficiaries for this grantor trust.
    • Click Add on the left navigation menu to add a beneficiary.
  6. Go to Screen 10, Grantor Distributions.
  7. Enter the Grantor Percentages for each beneficiary.

Within the program, grantor annuity trusts are considered grantor trusts and use the same entity type.

Some important differences in the way grantor trusts are treated include that:

  • The grantor's share of income is reported on a separate statement which Lacerte completes and is referred to in-product as a Grantor Letter.
  • Grantor trusts only require pages 1 and 2 of Form 1041, with the Grantor Statement printed on page 1 and a Grantor Letter instead of a Schedule K-1.
    • The Grantor Statement reads: "Under the terms of the trust instrument, this is a Grantor Trust. All income is taxable to the grantor as set forth under sections 671-678 I.R.C. A statement of income, deductions, and credits is attached."
  • Grantor trusts are legal trusts under state law and aren't recognized as separate taxable entities for income tax purposes because the grantors or other substantial owners haven't relinquished complete dominion and control over the trusts.
  • Grantors are treated as the owners of any portion of trusts in which they have a 5% or more reversionary interest.
  • Grantor trusts do not generally pay estimates or file amended returns.
  • Grantor trusts must distribute 100% of the income, and there's no way to distribute less than 100% or have any amounts appear on Form 1041.

Grantor trusts don't generate a Schedule K-1. However, for section 678 Beneficiary Defective Trusts, income is allowed to pass through to the individuals.

You can tell Lacerte to generate the income, deductions, and credits to be reported on the individual return on either the Grantor Letter or the Passthrough Summary (if income comes from a separate passthrough entity).

After following the steps above to enter a grantor trust, choose the appliance set of instructions below for more information.

  1. Go to Screen 10, Grantor Percentages.
  2. Select a beneficiary from the left navigation menu.
  3. Make sure there are entries in the Ordinary Income and/or Capital Gains columns.
    • Percentages should be entered as xxx.xxxxxx.
  4. Go to the Forms tab.
  5. Select the Grantor Letter from the left menu.
    • The income, deductions, and credits should now show on the Grantor Letter based on the percentages from step 3.

Lacerte uses grantor percentages to calculate a grantor's percentage of income and deductions for a grantor trust. If there's more than one grantor entered on Screen 6, Beneficiary Information, and you enter no percentages here, the program won't generate a Grantor Letter. If you enter only one grantor, the program allocates all income and deductions to that grantor. 

Lacerte also uses the percentage entered in Capital Gains to allocate short-term and long-term capital gains. The program may use the Capital Gains percentage to allocate Form 4797 income and capital gain dividends depending on the entries on Screen 11, Grantor Letter Options.

Follow these steps to generate the Passthrough Summary by setting the global option:

  1. From the Settings menu, select Options.
  2. Select the Tax Return tab.
  3. Scroll down to the Grantor Return Options section.
  4. Select Yes from the Passthrough K-1 Summary option dropdown menu.

Follow these steps to generate the Passthrough Summary per client:

  1. Go to Screen 11, Grantor Letter Options.
  2. Enter a 1 in Grantor's passthrough K-1 summary: 1= yes, 2= no [O].
  3. Go to the Forms tab.
  4. Select the Passthrough Summary from the left menu.
    • The income, deductions, and credits should now show on the Passthrough Summary.

The Passthrough Summary will only generate when income, deductions, and credits are entered on Screen 25, Passthrough K-1's.

  1. Go to the Forms tab.
  2. Select Grantor Letter from the left menu.
  3. In the box above the form, click the dropdown arrow to choose the beneficiary.


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