Trust - 1041 questions

Mar 27, 2009 2 Replies
W

My son is a full-time college student, whose tuition and expenses are almost completely paid by a trust for which I am the fiduciary. I've filed a 1041 for the trust, reporting a loss. Do I also need to show the loss on his personal 1040, line 17?



Second question: The trust made $18K in the stock market in 2007, and paid taxes on this. During 2008, it lost $25K. Can the trust do a carryback of NOL on these losses? The example in the 1041 instructions seems to imply that stock market losses are "non- business" and can only be carried forward. Is this correct?



Also, I only pay his living expenses during the summer and Christmas holidays. Since his trust pays more than 1/2 of his living expenses, I'm thinking that I cannot claim him as a dependent--he meets all the other requirements. Is this correct?


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F

in article snipped-for-privacy@o36g2000yqh.googlegroups.com, what-a-guy at snipped-for-privacy@gmail.com wrote on 3/26/09 9:49 PM:

The trust needs to issue him a K-1 and report the appropriate items on his return. Whether he reports a loss will depend on the character of the loss in the trust.

Most trusts treat capital gains and losses as corpus transactions, not income to be distributed to the beneficiaries.

They are treated just like they are on your own return.

Sounds like you can't claim him if the trust provides more than 50% of his support.

Uncompensated advice guaranteed correct or double your money back

Frank S. Duke, Jr. CPA Cincinnati, OH USA

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R

What kind of trust is this? I know that for a living trust, or at least some kind of living trust, there is no 1041 and the income goes directly onto your 1040. It's just a fancy way of putting some of your money under protection from lawsuits, divorces, quicker distribution of inheritance, etc (though I don't know if it is always effective at these tasks). There are words such as grantor trusts, revocable trusts, etc, which I don't quite understand, but worth a look. If this trust is truly a separate entity, then a K1 is in order, but the trust rates are extremely high so it doesn't make sense to me why anyone would have one.

Yes.

So the trust will claim the deduction for him? I didn't know that a trust could do that.

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