Paying tax on trust

I set up and funded a special needs trust for my daughter. All of the earnings in the trust are retained. If I pay the trust's taxes can I take a deduction for my own tax return?
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Reply to
lgranowitz

How old is your daughter? Does she live with you? What other income does she have? Is the trust effective now or after you die? Is it irrevocable? Is it a grantor trust? If so, who is treated as the grantor Is it a defective trust?
You have really not given us nearly enough information to be able to give you a reasonable answer.
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Stu 
http://DownToEarthLawyer.com
Reply to
Stuart Bronstein

we do not know what kind of trust you created. Assuming we are dealing with the very specific category of SNTs (Special Needs Trusts) and not any other type of trust, then who gets taxed depends upon how the trust was created.
If this is a first party trust, i.e., funded with the beneficiary's assets, it is a grantor trust and the income and deductions belong to the beneficiary and would get reported on the beneficiaries 1040. The trust can have an EIN and a 1041 would be filed but it is an information only return. I.e., you tell the government it is a grantor trust and you identify the grantor. An EIN is not required and the the SSN of the beneficiary would be used.
If this is a third-party trust, e.g. an SNT created by parents for the benefit of their child then it would be an irrevocable trust (but see below for an exception) with its own EIN. The trust would file its own 1041 income tax return. If the trust was created as a qualified disability trust, then it gets a personal exemption just like an individual. If not, then it is treated like any other trust and only gets a $100 exemption.
The exception: The third party trust will also be considered a grantor trust if the person creating it (typically the parent of a special needs child) reserves to his/her self rights, powers and authorities. If the trust is a grantor trust, all of the income and deductions belong to the person who created and funded the trust not the beneficiary as is the case in the first party trust.
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Reply to
Alan

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