Nontaxable Trusts

• Many types of trusts, such as revocable living trusts, are not taxed in and of themselves, but are considered to be "pass through" entities in the eyes of the Internal Revenue Service, or IRS. This means that any income or gain that is generated inside the trust must be reported by the grantor, or owner of the trust, on his tax return. Most revocable living trusts fall into this category, as well as some types of irrevocable trusts.
  
  

Taxable Trusts

• In some cases, the grantor may elect to have the trust taxed as its own entity and pay the taxes out of the trust assets, known as corpus. There are various types of situations where this can be necessary to meet certain tax or estate planning objectives. However, the tax rates for trusts are considerably higher than for individuals; they are, in fact, among the steepest in the tax code.
  
  

Tax Forms

• Any income that must be taxed from a trust is reported on Form 1041 for estates and trusts. This form must be filed by April 15 every year just like individual returns. Any income that is generated inside the trust is simply reported by either the trust custodian and all respective financial institutions that have accounts for the trust.
  
  

Do Trusts Issue W-9 Forms?

• A trust will never issue a W-9 form because this form is used solely by employees to state the amount of income that they choose to withhold to pay their taxes. In fact, there are no standardized tax forms such as the W-9 for trusts.