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Subject:  Re: Taxes for Family Trust Date:  5/13/2017  1:26 AM
Author:  Wradical Number:  125912 of 132878

I have seen nothing on taxes and I would think the managing institution would need that info.

It isn't necessarily to be found in the trust agreement, as to who pays the taxes. You have to read between the lines a little. Actually, who pays the taxes is a function of:

1. State law on estates and trusts, and
2. The Internal Revenue Code (and state tax law, if different. Some are.)

GENERAL RULE: (Gross generalization, but pretty valid) FOLLOW THE MONEY. GENERALLY, the trust will pay the tax on the income UNLESS the income is distributed to the beneficiary(ies.)

ODD RULE #1: Contrary to tax law: (and common sense) When a trust refers to "income" that does not include capital gains. Capital gains are generally treated as an addition to trust principal, and not "income", in determining what income is available for distribution to beneficiaries. State law may change this, depending on how a trustee records it on his/her books and reports it to beneficiaries. Some state laws provide for an alternative minimum income, based on unitrust amounts, originally used with charitable remainder trusts.

ODD RULE #2: "Income" from partnerships, including LLC's, and MLP's, is not the K-1 figures that apply for tax purposes, but rather the distributions received, on the cash basis. (Subject to state law requirements, also.)

Based on all of this, the income may be taxed to:
1. The Grantor (but not after he/she is dead;)
2. The trust (general rule)
3. Beneficiary(ies) to the extent distributed.
4. Some combination of the above. For example, if a trust owns stock in an S Corp., the portion of the trust assets consisting of S Corp stock is treated as a grantor trust, or disregarded entity, but taxed to the beneficiary, if a QSST, and taxed at the maximum personal rate, if an ESBT. If the trust has other assets, say other liquid investments, those are taxed under the general rules.

And if you're in doubt about this, discuss it with the law firm where it was produced.

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