Hi Guys,
I am rusty on trust tax codes...but you need to file a 1041 for each trust that has income - not just the irrevocable ones. A revocable trust or grantor trust just lets the income flow through.
A 1041 is a fiduciary income tax return. I have never done a land trust return but used to be a practicing CPA and have done many other kinds...so do check with a CPA who is familiar with Land Trusts specifically. Each trust treats the income differently but the filing of the return ( to my knowledge) is always required.
Hope this helps!
Quote:I am rusty on trust tax codes...but you need to file a 1041 for each trust that has income - not just the irrevocable ones. A revocable trust or grantor trust just lets the income flow through.A revocable trust is a flow-through entity with NO separate tax identity. All income from the trust flows through to the grantor and is reported on the grantor's 1040. No 1041 return is filed because a revocable trust is not separate tax entity.
In the context in which the question was asked, a (revocable) land trust is used simply as a title holding device and not as a business entity. Income generated by the property held in trust flows through to the grantor's personal tax return.
Just use your personal SSN. My bank will allow a trust bank account with a tax ID number for either the trustee, or the grantor. The enlightened officers at my bank realize that a living trust does not need to have a separate tax identification number.
I even opened a trust bank account in the name of the trust with the grantor's SSN, then later had the bank account's tax ID changed to the SSN for the trustee. Since my wife was the trustee, the bank sent the IRS a 1099 reporting interest income earned under her SSN. We then reported the 1099 income on Schedule B of our personal tax return.
In your original question, I did not know that you had applied for a separate tax ID for each of your trusts. This may complicate your life somewhat.
Because you now have a tax ID number for the trust, BethE's response may be more accurate than mine.
I suggest that you establish one or more LLCs and make the LLC the beneficiary of your land trust. Modify the language of your trust so that the beneficiary reserves the right to operate and manage the property for the production of income outside of the trust. Now open your bank account in the name of the LLC. If your LLC is established as a disregarded entity, just use your own SSN. If the LLC is established as a separate tax entity, get a tax identification number for your LLC. Get your trusts out of the income tax reporting loop.[ Edited by DaveT on Date 11/12/2003 ]
No, we created one Federal TaxID number for this trust just so we could cash a check. I might have jumped the gun.
The problem now is that the bank says that the ID on the account has to be a Federal TID because the trust is used for business purposes.
She also stated she could have a SS number on there if the trustee and grantor was one in the same person. (In my case it isn't, I am the grantor, and a friend is the trustee).
Since the trustee is the only person who will be able to write checks for the trust bank account, I suggest you operate your rental activity outside of the trust.
Have your tenant make checks out to your business entity rather than your trust. As far as the check you had received is concerned, why couldn't the trustee just endorse the check to you to deposit in your personal account?
I'm not sure but isn't it recommended that you have the beneficiary of the LT be the loss payee on the insurance policy? That way you don't have this problem cashing the check.
Also, I was under the impression that when you put a property into a trust (such as a sub2 deal) then you also inform the lender that the TIN/SS# on the loan needs to be changed from the sellers SS#. And isn't this b/c when the lender sends the IRS the 1099 and sends you (as the new owner) the 1098 showing the interest paid, you don't want it to be the seller's SS#; you want it to be yours.
Now, as to what number you would have the lender change it over to, I'm a little confused about. Would it be the beneficiary of the trust's number or would you create a new TIN for the trust and have the lender issue it under that number??
A 1041 is only needed if the trust is an irrevocable trust.
For most investors, the land trust is a living trust for which no tax return is required.
Ah. Good Point. I will notify my accountant. She hasn't dealt with Land Trusts before.
Hi Guys,
I am rusty on trust tax codes...but you need to file a 1041 for each trust that has income - not just the irrevocable ones. A revocable trust or grantor trust just lets the income flow through.
A 1041 is a fiduciary income tax return. I have never done a land trust return but used to be a practicing CPA and have done many other kinds...so do check with a CPA who is familiar with Land Trusts specifically. Each trust treats the income differently but the filing of the return ( to my knowledge) is always required.
Hope this helps!
Quote:I am rusty on trust tax codes...but you need to file a 1041 for each trust that has income - not just the irrevocable ones. A revocable trust or grantor trust just lets the income flow through.A revocable trust is a flow-through entity with NO separate tax identity. All income from the trust flows through to the grantor and is reported on the grantor's 1040. No 1041 return is filed because a revocable trust is not separate tax entity.
In the context in which the question was asked, a (revocable) land trust is used simply as a title holding device and not as a business entity. Income generated by the property held in trust flows through to the grantor's personal tax return.
Then if there is no tax identity needed we shouldn't have had to get a federal TAXID number to cash a check that was made out to the trust.
The name of the check was made out to 'Jane Smith as trustee of the xxxxxx Colony Square Drive Trust'
The bank wouldn't allow us to cash the check unless we had a Federal Tax ID in order to open the account.
How do we cash checks in the future if checks are going to the trustee?
Just use your personal SSN. My bank will allow a trust bank account with a tax ID number for either the trustee, or the grantor. The enlightened officers at my bank realize that a living trust does not need to have a separate tax identification number.
I even opened a trust bank account in the name of the trust with the grantor's SSN, then later had the bank account's tax ID changed to the SSN for the trustee. Since my wife was the trustee, the bank sent the IRS a 1099 reporting interest income earned under her SSN. We then reported the 1099 income on Schedule B of our personal tax return.
In your original question, I did not know that you had applied for a separate tax ID for each of your trusts. This may complicate your life somewhat.
Because you now have a tax ID number for the trust, BethE's response may be more accurate than mine.
I suggest that you establish one or more LLCs and make the LLC the beneficiary of your land trust. Modify the language of your trust so that the beneficiary reserves the right to operate and manage the property for the production of income outside of the trust. Now open your bank account in the name of the LLC. If your LLC is established as a disregarded entity, just use your own SSN. If the LLC is established as a separate tax entity, get a tax identification number for your LLC. Get your trusts out of the income tax reporting loop.[ Edited by DaveT on Date 11/12/2003 ]
No, we created one Federal TaxID number for this trust just so we could cash a check. I might have jumped the gun.
The problem now is that the bank says that the ID on the account has to be a Federal TID because the trust is used for business purposes.
She also stated she could have a SS number on there if the trustee and grantor was one in the same person. (In my case it isn't, I am the grantor, and a friend is the trustee).
Our trust, is a living revokable trust.
Since the trustee is the only person who will be able to write checks for the trust bank account, I suggest you operate your rental activity outside of the trust.
Have your tenant make checks out to your business entity rather than your trust. As far as the check you had received is concerned, why couldn't the trustee just endorse the check to you to deposit in your personal account?
It was an insurance claim, not a tenants check.
We do have the tenants pay us through our business name. We are "managing" the properties now.
I'm not sure but isn't it recommended that you have the beneficiary of the LT be the loss payee on the insurance policy? That way you don't have this problem cashing the check.
Also, I was under the impression that when you put a property into a trust (such as a sub2 deal) then you also inform the lender that the TIN/SS# on the loan needs to be changed from the sellers SS#. And isn't this b/c when the lender sends the IRS the 1099 and sends you (as the new owner) the 1098 showing the interest paid, you don't want it to be the seller's SS#; you want it to be yours.
Now, as to what number you would have the lender change it over to, I'm a little confused about. Would it be the beneficiary of the trust's number or would you create a new TIN for the trust and have the lender issue it under that number??
This thread is no longer dealing with and income tax issue. If anyone still wants to pursue this question, the Legal Forum would be the best place.