I'm a U.S. resident (Green Card). The executor of my father's will ended up creating a testamentary trust (did not for a couple of years, then did so retroactively, and both the federal and provincial goverments apparently accepted that). I have received a check in 2005 (< $100,000) with no accompanying documentation whatsoever. I also have not received an estate report since 2003, and I'm not holding my breath for an NR4 either. I do however know that checks will be coming in future years (I don't know for how long).
My guess is that I cannot consider that check as a gift or bequest because it is coming from a trust and in any case will be coming in multiple installments (I read that a bequest has to be done in no more than three installments). So even if the amount is less than $100K, I must report it on form 3520. Does that sound right?
Since I'm not expecting a Trust Beneficiary Statement (did I mention that the executor is somewhat incompetent?), I will have to use schedule A of form 3520 and accept the higher tax burden. Sounds about right also?
Any idea also if a testamentary trust administered by the executor considered a grantor or nongrantor trust?
Some replies might suggest that I get myself a lawyer, but I'd rather not do that and just deal with the current situation. However, I would still like to deal with it in the most economic way possible. If someone thinks that I can still legally benefit from the gift or bequest < $100K rule, I'm interested to learn how.
-- Thanks
U.S. tax on distributions from a Canadian testamentary trust
Moderator: Mark T Serbinski CA CPA
While you may have to report the existence of the trust, and the fact that you are a beneficiary (on 3520 and/or 3520-A), the tax you pay should only be on the portion which has grown since the trust was set up, which is probably miminal. The vast majority of your funds are simply return of principle.
Unless there is really something quirky in the set up of this trust, your tax should be minimal. If not, then shame on your executor for setting something up that totally screwed you.
There is no upper or lower threshold on on gifts tha the receiver would or would not pay tax. Canada does not charge the giver taxes on gifts, and US does not charge tax to recipients of gifts, regardless of the source or the amount.
Unless there is really something quirky in the set up of this trust, your tax should be minimal. If not, then shame on your executor for setting something up that totally screwed you.
There is no upper or lower threshold on on gifts tha the receiver would or would not pay tax. Canada does not charge the giver taxes on gifts, and US does not charge tax to recipients of gifts, regardless of the source or the amount.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Thanks Nelsona, we are focusing on the key points here.
Agree in principle that I should only pay tax on income generated by the fund, but, on form 3520, part III, I can implement that principle only if I use Schedule B, and my understanding is that I cannot use schedule B without a "Trust Beneficiary Statement", which, because of the uncooperative executor, I don't think I can get. If I cannot use schedule B, I must use Part III schedule A ("default calculation of trust distribution"), which uses an IRS mandated formula to decide what part of the undifferentiated distribution (i.e. the amount of the check I received) is what. That formula is very unfavorable, especially because the distributions have been "top heavy", i.e. I received a distribution this year and none in the preceding two years.
You are quite right about there not being any taxation threshold for bequests or gifts. The $100K threshold is a reporting threshold (i.e. you don't have to tell the IRS a thing if you receive a gift < $100K in a year, but you have to report higher amounts, even if they are not taxed). My mention of the $100K was unecessary and besides the point. My real question was if I could still consider the amount I received as a bequest. I don't think so, but would like to be proven wrong.
Cheers
Agree in principle that I should only pay tax on income generated by the fund, but, on form 3520, part III, I can implement that principle only if I use Schedule B, and my understanding is that I cannot use schedule B without a "Trust Beneficiary Statement", which, because of the uncooperative executor, I don't think I can get. If I cannot use schedule B, I must use Part III schedule A ("default calculation of trust distribution"), which uses an IRS mandated formula to decide what part of the undifferentiated distribution (i.e. the amount of the check I received) is what. That formula is very unfavorable, especially because the distributions have been "top heavy", i.e. I received a distribution this year and none in the preceding two years.
You are quite right about there not being any taxation threshold for bequests or gifts. The $100K threshold is a reporting threshold (i.e. you don't have to tell the IRS a thing if you receive a gift < $100K in a year, but you have to report higher amounts, even if they are not taxed). My mention of the $100K was unecessary and besides the point. My real question was if I could still consider the amount I received as a bequest. I don't think so, but would like to be proven wrong.
Cheers