Can a trustee pay an irrevocable trust's taxes on behalf of the trust via personal check?

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FoolMeOnce
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Can a trustee pay an irrevocable trust's taxes on behalf of the trust via personal check?

Post by FoolMeOnce » Wed Mar 13, 2019 8:52 pm

The subject line says it all (unless you need more information!)

Thanks!

JoinToday
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Re: Can a trustee pay an irrevocable trust's taxes on behalf of the trust via personal check?

Post by JoinToday » Wed Mar 13, 2019 8:55 pm

The devil is in the details, more information is needed.

Is the personal check from the trustee? If it is a loan from the trustee to the irrevocable trust, seems like the trustee can do it.
I wish I had learned about index funds 25 years ago

JoinToday
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Re: Can a trustee pay an irrevocable trust's taxes on behalf of the trust via personal check?

Post by JoinToday » Wed Mar 13, 2019 8:55 pm

duplicate deleted.
I wish I had learned about index funds 25 years ago

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FoolMeOnce
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Re: Can a trustee pay an irrevocable trust's taxes on behalf of the trust via personal check?

Post by FoolMeOnce » Wed Mar 13, 2019 9:10 pm

JoinToday wrote:
Wed Mar 13, 2019 8:55 pm
The devil is in the details, more information is needed.

Is the personal check from the trustee? If it is a loan from the trustee to the irrevocable trust, seems like the trustee can do it.
Personal check from the trustee. Very small amount of taxes due, no check-writing set up for trust accounts, trustee just wants to pay it and be done. Does not care about reimbursement, and does not want it to be considered a loan.

BigJohn
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Re: Can a trustee pay an irrevocable trust's taxes on behalf of the trust via personal check?

Post by BigJohn » Wed Mar 13, 2019 9:20 pm

I'm interested in the answer as I did my first trust tax return as the trustee this year. The trust owed no taxes but this might not always be the case. With no check writing enabled on the trust, my plan would have been to pay it from my checking account and then do an ACH transfer from the trust to my checking account for the same amount.

JoinToday
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Re: Can a trustee pay an irrevocable trust's taxes on behalf of the trust via personal check?

Post by JoinToday » Wed Mar 13, 2019 10:31 pm

I am not a lawyer, but have been trustee on a couple trusts.

1. I don't understand why you don't get checks issued. Vanguard gave me checks for the trust I currently manage, and said they were OK if I had checks less than $250. (I said I only had a couple checks per year). I have dividends deposited into a MMF (4 times per year), and use this money for taxes, and tax prep. fees

2. Guidance I got from the lawyer was to NOT mix my finances with trust finances. Never, never, never! If there are any issues with trust management, or the beneficiaries question your management, it just looks bad even if you are not doing anything wrong

3. If you want to make a gift to the trust, I think you can do it, but guidance from the link below says no. It is like a gift to anyone else I believe. I did a google search for "can I make a gift to someone else's irrevocable trust". I glanced at the link below -- Paragraph 2.4 refers to periodic contributions to the trust:
2.4Periodic Contributions: You may periodically make contributions of cash or other assetsto the trust, as you deem appropriate, but never tell the trustee what to do with those contributions. Thatis governed by the trust instrument.(a)If you want to make a contribution to cover an obligation of the trust, make thecontribution to the trustee, but do not make any notation on the check or give any writteninstruction that could be construed as a direction to the trustee. Remember, you cannot retaincontrol over the trust assets. Even the appearance of control by you can create problems.(b)For the same reasons, avoid making contributions on when obligations are dueand in the exact amount of the obligations. If your intent is to see that payments on a loansecured by trust assets are made, it is better to make contributions in excess of the debt serviceor insurance premiums so that the trustee can keep an interest-bearing bank account open andeven invest in other assets, as the trustee deems appropriate..... (d)Contributions to the trust without consideration are taxable gifts.
3.5 Personal Account: Never deposit trust contributions into a personal account or makepayments in behalf of the trust from a personal account.
http://rlklegal.info/pdf/irrevadmin.pdf

Again, I am not a lawyer
I wish I had learned about index funds 25 years ago

BigJohn
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Re: Can a trustee pay an irrevocable trust's taxes on behalf of the trust via personal check?

Post by BigJohn » Wed Mar 13, 2019 11:32 pm

BigJohn wrote:
Wed Mar 13, 2019 9:20 pm
I'm interested in the answer as I did my first trust tax return as the trustee this year. The trust owed no taxes but this might not always be the case. With no check writing enabled on the trust, my plan would have been to pay it from my checking account and then do an ACH transfer from the trust to my checking account for the same amount.
Just to clarify my comments, I am both the income beneficiary and the trustee so for me mixing finances isn't an issue. Concerns above by JoinToday seem prudent for a 3rd party trustee of someone else's money.

Spirit Rider
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Re: Can a trustee pay an irrevocable trust's taxes on behalf of the trust via personal check?

Post by Spirit Rider » Thu Mar 14, 2019 1:19 am

BigJohn wrote:
Wed Mar 13, 2019 11:32 pm
Just to clarify my comments, I am both the income beneficiary and the trustee so for me mixing finances isn't an issue. Concerns above by JoinToday seem prudent for a 3rd party trustee of someone else's money.
Don't assume that just because you are both trustee and beneficiary that comingling finances isn't an issue. You might endanger what little asset protection a self-settled trust has.

Personally, it seems like no check writing capability in the trust is a poor reason for comingling trust and personal finances.

I wouldn't do this without professional advice.

WannabeAgAlum
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Re: Can a trustee pay an irrevocable trust's taxes on behalf of the trust via personal check?

Post by WannabeAgAlum » Thu Mar 14, 2019 1:59 am

Is the trust a grantor trust or a non-grantor trust for income tax purposes? If it's a grantor trust, then the grantor (ie, the person who set up the trust) is responsible for the income taxes if he or she is still living. So the trustee (assuming trustee is a different person) who pays the tax from personal funds is essentially making a gift to the grantor in the amount of the tax paid. If non-grantor trust, then the trustee is making a gift to the trust for the benefit if the beneficiaries.

BigJohn
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Re: Can a trustee pay an irrevocable trust's taxes on behalf of the trust via personal check?

Post by BigJohn » Thu Mar 14, 2019 6:06 am

Spirit Rider wrote:
Thu Mar 14, 2019 1:19 am
Don't assume that just because you are both trustee and beneficiary that comingling finances isn't an issue. You might endanger what little asset protection a self-settled trust has.
It's not a self-settled trust. It's my wife's testamentary trust.

However, this is just another example of the complexity of trusts so I do agree with your advice to get professional advice if there is any doubt.

Gill
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Re: Can a trustee pay an irrevocable trust's taxes on behalf of the trust via personal check?

Post by Gill » Thu Mar 14, 2019 6:18 am

Sure, no reason you can’t. You are in effect making a gift to the remaindermen.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

Topic Author
FoolMeOnce
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Re: Can a trustee pay an irrevocable trust's taxes on behalf of the trust via personal check?

Post by FoolMeOnce » Thu Mar 14, 2019 7:25 am

WannabeAgAlum wrote:
Thu Mar 14, 2019 1:59 am
Is the trust a grantor trust or a non-grantor trust for income tax purposes? If it's a grantor trust, then the grantor (ie, the person who set up the trust) is responsible for the income taxes if he or she is still living. So the trustee (assuming trustee is a different person) who pays the tax from personal funds is essentially making a gift to the grantor in the amount of the tax paid. If non-grantor trust, then the trustee is making a gift to the trust for the benefit if the beneficiaries.
Non-grantor.

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