Trust Tax Reporting and Accountings
Community Trust files a tax return each year for each of our 800+ trusts, handled by an outstanding CPA firm, Korbey Lague, PLLP, located in Tyngsboro, Massachusetts. 99% of our trusts are established with the beneficiary’s own assets, which means that they are considered “grantor trusts” for tax purposes. As a result, the most important part of the tax return is a “Grantor Letter” that we send to each beneficiary or responsible party, advising the beneficiary of the income and expenses that are passed through to them from their trust.
Trusts that are not considered grantor trusts usually require a minimal payment of tax by the trust. Returns are signed and filed by Community Trust, and the tax payments are reported to the beneficiary or responsible party on the annual Accounting for the trust.
Taxable income or capital gain is, if possible, always passed through to the beneficiary to report on his or her own tax return, rather than having the trust pay tax. The reason for the “pass through” is that individuals almost always pay tax at a lower rate than a trust. If any tax is owed by the individual, the trust account will distribute funds to the person to cover the tax, unless there are extreme circumstances that would prevent it from doing so.
Almost without exception, Community Trust beneficiaries do not actually have to pay any taxes on the income from their trusts, because they have large medical expense deductions each year, in addition to the expenses that are passed through to them from the trust.
Community Trust sends Grantor Letters as early in the tax season as we can, so that beneficiaries who file tax returns will have this information in time to include it when they file. Sometimes, for reasons that we cannot control, the letters are delayed. Beneficiaries and their responsible parties are urged to communicate with Community Trust during tax season if they have urgent circumstances regarding tax filing.
Along with the tax return, Community Trust prepares and sends to each beneficiary or responsible party an Accounting of the trust transactions and assets at the end of the calendar year. Accountings show additions, distributions and the net amount remaining at the end of the year. Amounts distributed are reported in categories that help the beneficiary to have a sense of how the trust was used during the year.