Must Trust Report Beneficiary Death and Accrued Interest to IRS?
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Question:
Must the trustee of an irrevocable trust with an EIN notify the IRS of the death of the primary beneficiary of the trust? Also, where interest on a CD is accumulating in the trust and will not be paid out to heirs until maturity of the CD in a year, is there a requirement to file a Form 1041 annually before maturity of the CD to report accumulating interest or can the Form 1041 be filed after distribution of interest and principal to the heirs?
Response:
No, it’s not necessary to report the death of a beneficiary of an irrevocable trust, even the primary beneficiary, to the IRS. The trust is the taxpayer and reporting entity, not the beneficiaries.
Further, neither the trust nor an individual owner of a certificate of deposit needs to report income until it is paid out by the bank. It would be difficult to report since the bank will only issue the 1099 when payment is made and that will be for the full interest payment even if the certificate of deposit was for several years.
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