How Should Trustee Fees be Reported on Trust Income Tax Returns?
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Question:
When issuing a K-1 to a trustee of a decedent’s irrevocable trust for trustee fees, how should this be reported? Should it be reported as Other Portfolio and non-business income?
Response:
Actually, the trustee should not receive a K-1. K-1s are used for reporting trust income that passes through to beneficiaries. Payment of trustee fees constitute earned income to the trustee for which they should receive a 1099. The fees are also deductible on the trust income tax return, which could save some taxes, either for the trust or for the beneficiaries.
