FAQS Page 6
FREQUENTLY ASKED QUESTIONS
If you buy a house for your spouse (beneficiary) is it in their name or trust name?
Trust must own the house and pay for the house. If the home was owned by the Trustee or Beneficiary, it must then be transferred (sold) to the Trust by a Quit Claim Deed or a new Warranty Deed.
If you buy a TV to go in the house owned by the trust, is that a 100% authorized Trust expenditure?
If the Trust owns the home, yes. The Trust must pay for the appliances and fixtures and maintain receipts for all purchases.
My spouse is a beneficiary – if I buy a house for the trust how does the living in it work?
The beneficiary can live in the house without paying rent. The Trustee can use the house to perform all Trust functions but must pay rent for the personal use of non-trust portions of the house (i.e.: bedroom, kitchen, etc.).
If a Trust buys the house, does the trust pay the property tax?
Yes, and all other expenses necessary to maintain the property.
Can the trust pay for construction costs of a house if the house is being built on land which belongs to the trust?
The Trust must own the land and must be the Payee on the Interim Construction Note (if a note is needed) for the Trust to pay for the construction.
If a person has a trust and they put their home into the trust, do they go back to the date the house was purchased to recap the expenses for the demand note or is it only from the date the house was put in the trust?
Like any asset transferred (sold) to the Trust, expenses are authorized starting with the date the asset is legally transferred (sold) to the Trust. The Demand Note amount is based on the basis (cost) of the asset not the fair market value.
If I deposit my job income into the Trust Account, do I report it as income if the 1099 is made out to me?
Income from 1099’s and W2’s will still be reported as income to whomever the form is made out to (you or your business). The dollars can be direct deposited into the Trust to “fund” the Trust and add to your Demand Note, but the income reporting will still be on your personal tax or business return.
If my 1099 is made out to the Trust, how will it affect my 1040?
A 1000-Misl means “Contract Labor” (Business Income). A business should not be run from a Beneficial Trust. A business should be run from an LLC using the Beneficial Trust as 90% Limited Partner or from a Business Trust’s Tax Return. The 10% General Partner Income from the LLC would be reported to you on a K-1 and end up on your personal tax return as Supplemental Income. The Pass-Through Business Income that is passed from the Business Trust after a lease Payment for the use of assets and intellectual Property to the Beneficial Trust’s expenses and then pass to you personally on a K-1 as Supplemental Income if you are a Beneficiary of the Beneficial Trust or on a 1099 if you are the Trustee of the Beneficial Trust.
How should I report interest income from investments to the IRS?
If the Trust is the owner of the investment account, all passive income is tax deferred. Passive Income is Interest, Dividends, Capital Gains, Rents, Royalties and Passive K-1 income. Ownership of the account must be recorded in the Investment Company’s books as the Trust with the Trust’s EIN and all 1099’s must be reported in the Name and EIN of the Trust. If you have legally sold these investments to the Trust and changed the ownership on the books of Investment Company, the income would not be reported on your personal tax return since the 1099’s would be in the name of the Trust.
Can the Trust fund annuities to auto pay the Life Insurance policies on each of us and each 1099 worker with the Trust as beneficiary?
The Trust is the owner and beneficiary of the insurance policies and as such pays the premiums on those policies directly. The Trust can be the owner and beneficiary of the annuity and the distributions on that annuity can be used to pay for the insurance policies that the trust owns.
Who should own policies?
The Trust should own the policies and be the beneficiary on those policies. IRS code 7702 allows for the tax fee distributions on the policy to pass tax free to the person insured on the policy. The Trustee then manages those policies. The original owners can take a Demand Note for the Cash Value in the policy when transferred to the Trust.
When a Trustee leases the Personal Use of the House, do they pay income tax on the rent they receive?
A Trustee completes a Trustee Personal Use Lease Form and leases the Personal Use of the home and vehicle from the Trust. Since there is a Legal Lease Agreement and payments to the trust, there will be no requirement to report the personal use of the house and vehicle as income on your personal tax return. Trustee must maintain, oversee and protect all the assets owned by the Trust, including the house and vehicle. As such, the Trustee must have access and occupy the house and vehicle for Trust Business. As such, only the personal use would be taxable compensation to the Trustee if a Lease Agreement were not in place.
Can you add a Trust rule or salary?
There is no RULE needed. The Trustee has full DISCRETIONARY powers and has absolute and sole discretion in making Trust expense payments. A “salary” is not needed. A Form 1099 will be issued to the Trustee for funds he(she) takes out of the Trust. A K-1 will be issued to Beneficiaries for funds they take out of the Trust.
Are the trust accounts subject to Bail-in?
Can the IRS grab money that is in the Trust?