Gift taxes may also apply to either property transfers to a trust or distributions to beneficiaries.Property transfers to an irrevocable trust may be subject to gift tax, but for revocable trusts, gift tax liability will not be incurred until the property is transferred to a beneficiary or when the trust becomes irrevocable. If the trust has taxable income or gross income of 0 or more, or if any of the beneficiaries are non-resident aliens, then it must file Form 1041, U. Income Tax Return for Estates and Trusts and may also have to make estimated tax payments.
Likewise, any taxable distribution to beneficiaries is deductible by the trust.If the trust retains income beyond the end of the calendar year, then it must pay taxes on it.If money is distributed to the beneficiaries, then whether it is taxable or not to the beneficiaries will depend on whether principal or income was distributed, and if it was income, then whether it was tax-free income or retained income from previous years that the trust has already paid tax on.These lenders will seize the collateral and sell it—often at a significant discount, due to the short time frames involved.If that does not cover the debt, they will recoup the balance from the company’s remaining liquid assets, if any. These include bondholders, the government (if it is owed taxes) and employees (if they are owed unpaid wages or other obligations).When the trust document requires the trustee to distribute trust income to the beneficiaries, the beneficiaries are responsible for all tax payments on those distributions.