Common Questions about Grantor Trusts in ProConnect Tax

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Below are solutions to frequently asked questions about entering grantor trust distributions in the Fiduciary return and entering the grantor letter into the Individual's return. Refer to the Instructions for Form 1041 for more information about grantor trusts.

How do I enter a Grantor Trust in ProConnect Tax?

1. Go to Input Return ⮕ General ⮕ Client Information.
2. Scroll down to the Miscellaneous Info section.
3. In the Type of Entity field, select  4 = Grantor Trust from the dropdown options.
4. Select the Beneficiary/Grantor Information tab.
5. Enter all applicable beneficiaries for this grantor trust.
   • Select the plus sign at the top to add a beneficiary.
6. Go to Grantor Distributions.
7. Enter the Grantor Percentages for each beneficiary.

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What are the major differences between grantor trusts and other types of trusts?

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.

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Where does passthrough K-1 information print?

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 the program 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.

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How do I view multiple Grantor Letters?

When viewing the Forms, each grantor will generate a separate Grantor Letter in the list of forms.

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Can I distribute less than 100% of the items on a grantor trust?

Grantor trusts are required to distribute out 100% of their income to their grantors. ProConnect Tax does not have the ability to distribute less than 100%.

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How do I enter a Grantor Letter in Individual?

Instead of entering the information in as a K-1, the information provided on a grantor letter should be entered directly in the appropriate screens based on the type of income received.
For example:

• Interest income from a grantor letter should be entered in Income ⮕ Interest Income (1099-INT, 1099-OID).
• Dividend income from a grantor letter should be entered in Income ⮕ Dividend Income (1099-DIV).

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