As tax season is now in full swing, below are some important gift tax and trust income tax return reminders:
Gift Tax Returns
The lifetime exemption from gift and estate tax was $11,180,000 per person in 2018. Currently it is $11,400,000 per person for 2019. Generally, gifts made directly to a medical provider or educational institution on behalf of someone do not count against your lifetime exemption. In addition, donors have an annual exclusion from gift tax of $15,000 per donee. This means that a donor may give $15,000 to each of his or her three children, for example, without those amounts counting against the donor’s lifetime exemption. If a donor is married, he or she may give $30,000 by “gift‐splitting” with a spouse.
If you made any gifts in 2018 – regardless of amount – you should confirm with your accountant or attorney whether a gift tax return is required to be filed. Even if you have not made a gift subject to gift tax, a return may be required in order to report the gift and to apply it against your lifetime exemption from gift and estate tax. A gift tax return may also be required in order to elect “gift‐splitting”.
Trust Income Tax Returns
If you created a trust that is treated as a “grantor trust” for income tax purposes, the trust’s items of income and loss will be reported on your personal income tax return each year. If the trust is not a grantor trust, then items of income and loss for the trust are required to be reported on a separate trust tax return (a “Form 1041”). For trusts that are not grantor trusts, distributions made to a beneficiary during the year may be taxable to that beneficiary. The beneficiary will generally be made aware of his or her tax liability for any distributions through a K‐1 generated by the trust tax return preparer.
Please confirm that your accountant is aware of all trusts that you have created, or of which you are a beneficiary and receiving distributions. If you created a grantor trust or if you are a beneficiary who received trust distributions from a non‐grantor trust that are taxable to you, your accountant will need information regarding the trust in order to properly prepare your personal income tax return.
If you have any questions, please contact your Advisor team.
Updated March 2019