Special Needs Trust, Trustee Fees where to record on Beneficiary's 1040

Forum|Forum|1 year ago
February 26, 2025
2 replies
31 views

Client is a young child with a Special Needs Trust. Unearned income exceeds limit so he files a separate return. Trustee Fees are significant, > $22,000. I know we can't deduct the Investment Advisor fees, but where would the Trustee Fees be recorded? (Schedule A: Miscellaneous expenses?)

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Best answer by cfbcpa

@sjrcpa wrote:

@BobKamman Ever seen any such fees?

I haven't.

Not unusual if the trustees are doing a lot more than just paperwork. Often in such cases they are supervising the guardians and dealing with medical professionals, caregivers and of course lawyers for both the beneficiary and the guardians.

This would be a self settled SNT and is considered a grantor trust - so the 1041 is not like a normal trust where you can deduct trustee fees, admin exps, etc - the return usually completes a grantor statement and is attached to the 1041 allocating the income and expenses out by category. It does not net teh expenses with the income either- all income is reported as gross-But unfortunately, the trustee fees would then be on the personal tax return as a miscellaneous itemized deduction but not since 2016- those expenses have been eliminated, for now.

This is one draw back of self settled SNTS.

sjrcpa

Level 15

Presumably paid by the Trust. Deducted on the Trust's 1041.

The more I know the more I don’t know.

J

Jesse57Author

Level 3

Thanks for taking the time to reply. This Trust is a Simple Grantor Trust in which the Grantor self-funded the Trust and is also the Beneficiary. All items of income and expense flow through to the Beneficary's 1040. He receives a combined 1099 like we would from our broker. I am fairly certain the Trustee fee goes on Schedule A in the Miscellaneous Deductions not subject to the 2% Floor, Would just feel better if a peer would confirm. I like your comment, "The more I know the more I don't know" 🙂

BobKamman

Level 15

I think it would go on the 1041 as a miscellaneous deduction not subject to the 2% floor, but you have to wait until next year if you want to claim it on Schedule A (and probably not then, either, because corporations have special needs too).

I haven't seen any special needs trusts that are not irrevocable, but I suppose it can happen.

BobKamman

Level 15

This one has been bothering me for a month because I fail to see the reasoning. It's based on there not being an "adverse party," even when in the cases I work with, the trustee is under court supervision. It's considered a "grantor trust" because it was not created by a third party, but how can a newborn child be considered the "first party" for a trust arising from medical malpractice at the moment he was born?

I traced this back to a PLR from 2010 (PLR-129484-10), which involved a deceased father who named his disabled son as the beneficiary of an IRA. There is no court approval involved. Is the court, or the court-supervised trustee, an "adverse party" to take this out of the "grantor trust" category? I don't think the mumbo-jumbo about what's left over going to the Medicaid provider, has anything to do with it. Those are just terms that may be required in some cases. In fact, they might be read as creating an "adverse party" where one doesn't otherwise exist.

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