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Old 04-15-2015, 12:56 PM
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Medical Needs Trust

My wife has a very serious medical condition. We established a "fund me" account to raise funds to help pay for the extensive medical costs. We established a medical needs trust through a local bank so the funds are deposited directly into the Trust from the fund me account. Are we required to file a tax return for this trust and if so what form(s) do we use. We are in North Carolina.

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Old 04-15-2015, 06:40 PM
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I guess it depends; basically, Any estate or trust earning income in a given tax year must pay a trust income tax. In the case of revocable trust, grantor reports all trust income on her own tax return. If it is irrevocale trust, then the irrevocable trust has not generated income that exceeds $600 during the tax year, you are not required to file
The amount paid is determined by filling out Form 1041.as a trustee, you are in charge for the trust and if the trust has any income , either distributed or not , so, you need to/ should file trust income tax return - form 1041 and report distributed income to beneficiaries on sch K-1
The trust needs to file f1041aslongas the trust has Any taxable income for the tax year; Gross income of $600 or more regardless of taxable income.
Also as long as trust's income is distributed , it is taxable on each beneficiary tax return and not taxable on the trust tax return. Medical expenses paid by the trust on behalf of beneficiary deemed distribution. You may report that information in the box 14 with the code H and may add a separate sheet with details.There will be two option from tax prospective:the income will be distributed from the trust within tax year that income will be taxable for recipient ;the income will not be distributed from the trust within tax year that income will be taxable for trust.
The 1041 sch K1 lists the distribution of the money which is paid to a beneficairy or the trustee. So for example, the trustee licquidates stock from the trust for what ever reason, to pay medical bills in this case.
"All of the trust income (whether paid out for the beneficiary's needs or not), along with the deductions for professional fees and expenses, will be passed along to the beneficiary for inclusion on his/her personal income tax return at the lower individual tax rate."
The distribution is then included in the personal income tax return of beneficiaryas usual and any medical deductions would be taken on the personal return on Sch A of 1040 aslongas you itemize deductions. Medical deductions are not taken on the form 1041.



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Old 04-16-2015, 08:43 AM
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I am not sure if the trust has generated any "income" nor has there been income distributed to beneficiaries. All of the funds in the trust were received via donations from friends, family, and others. The funds have been used solely to pay medical providers for my wifes' health care. The funds have passed through the trust and directly to the medical providers. We did not include any of these medical bills on our individual tax return because we did not pay them -the trust did. In this scenario, should Form 1041 still be used if there isn't income generated or distributed?



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Old 04-16-2015, 07:37 PM
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Some people set up a trust fund for medical expenses. So you and your spouse established the trust for your spouse’s medical bill and you are a trustee of the trust. How did you set it up?/ did you set it up as revocable or irrevocable trust?? If it is arranged during the lifetime of the person who sets up the account, it is called a living trust Since this trust is revocable, it means that you can change it any time or upon any circumstances..
As said previously, you will not need to file IRS Form 1041 for your revocable living trust as long as you are alive and well and serving as the sole Trustee or as a Co-Trustee of the trust.As you use your SSN# for the trust, all interest, dividends and other income earned by the assets held in your trust will be reported to the IRS under your very own SSn# Therefore, all income earned by your revocable living trust will be reported on your very own IRS Form 1040, not on a separate Form 1041.
As a trustee - you are in charge for the trust and if the trust has any income - either distributed or not - your should file trust income tax return - form 1041 .
If the trust is irrevocable trust, then, As a trustee , you are in charge for the trust and if the trust has any income - either distributed or not - your should file trust income tax return form 1041and report distributed income to beneficiaries on sch K-1
The trust) must file Form 1041 aslongas it has Any taxable income for the tax year; Gross income of $600 or more (regardless of taxable income.
As long as trust's income is distributed - it is taxable on each beneficiary tax return and not taxable on the trust tax return. Medical expenses paid by the trust on behalf of beneficiary deemed distribution. You may report that information in the box 14 with the code H and may add a separate sheet with details.the income will be distributed from the trust within tax year - that income will be taxable for recipient ;the income will not be distributed from the trust within tax year - that income will be taxable for trust.
Usually individual tax rate is more beneficial, but that depend on other circumstances as well.After the trust is funded, the trustee role becomes critical;the trustee must have a good understanding about how eligibility works – and he or she must be willing to keep up with the law, including paying taxes, keeping records, investing trust property, and etc.



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