Paying Trust Expenses

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GeraniumLover
Posts: 85
Joined: Mon Feb 22, 2016 3:39 pm

Paying Trust Expenses

Post by GeraniumLover » Sun Jan 07, 2018 8:58 am

I am helping my mother manage two trusts of which she is a trustee: my late father's trust and a real estate trust, for which she is currently the sole beneficiary. Since my mother's taxable estate already exceeds the threshold over which estate taxes will be due in her state, to reduce the size of her estate, she has been paying various expenses incurred by the trusts: legal fees and taxes for my dad's trust and mortgage payments, timeshare fees, real estate taxes,insurance and maintenance expenses for the properties in the real estate trust (which has no income).

Here are my questions:

(1) Can my dad's trust deduct the expenses my mother is picking up on its Form 1041?
(2) Can my mother deduct the mortgage interest and real estate taxes she is paying for the real estate trust?
(3) Does my mother need to file any gift tax returns for any of the expenses she is picking up? If so, will any payment be due, or would the amounts just be deducted from her lifetime exclusion amount?

GeraniumLover
Posts: 85
Joined: Mon Feb 22, 2016 3:39 pm

Re: Paying Trust Expenses

Post by GeraniumLover » Tue Jan 23, 2018 12:15 pm

Just bumping this to see if anyone here has insights before I discuss with my trust attorney and CPA. Thanks!

not4me
Posts: 304
Joined: Thu May 25, 2017 3:08 pm

Re: Paying Trust Expenses

Post by not4me » Tue Jan 23, 2018 4:19 pm

I don't really have any answers & in part just bumping the thread. I think the devil may be in the details & you'll have to really wait & talk to the CPA. It wasn't clear to me if she is the sole beneficiary to BOTH or just the real estate trust. The successor info on them might also help determine if the trust SHOULD handle the expenses. I'd be surprised if your father's trust can't deduct the legal fees & taxes. But, in the long term if she doesn't mind paying them, might it help the future beneficiary of the trust by keeping the trust size larger? As to whether she can deduct mortgage, etc on her personal taxes, I would somewhat doubt it, but might depend on what is in the trust & whether she gets benefit from it directly. If she is paying the bank/government/etc directly, there likely isn't a gift tax situation. If the real estate trust has no income, she could "gift" some cash to the trust. But that sounds like a short term thing & needs to have expert eyes on it with a long term view.

Understand I'm not a cpa or lawyer & haven't seen details....so beware & good luck!

Gill
Posts: 4184
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Paying Trust Expenses

Post by Gill » Tue Jan 23, 2018 4:39 pm

By paying expenses of the trusts as you outlined she is making gifts to the remaindermen and should be filing a gift tax return. Also, she shouldn't be able to deduct these personally nor would the trust be able to deduct them. If her estate is large enough to be subject to estate tax, I would think she'd be guided in taking these steps by competent counsel.

Gill

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