Is it normal for a trustee to file 1041s and issue K1s for a living grantor of a revocable trust?

I recently became the trustee for my uncle who created a revocable trust back in 2018. The previous trustee was a corporate entity that he had appointed when he first set up the trust. After taking over as trustee late last year, I finally received his tax documents for this year and was surprised to see that the information came on a Schedule K-1. Looking at the paperwork, it shows about $75,000 of income and around $38,000 in trustee fees. The thing is, I don't think my uncle can deduct those fees on his personal Form 1040. I'm confused about two things: First, did the previous corporate trustee make a mistake by filing Form 1041s for a revocable trust with a living grantor? And second, is there any way I can reduce the taxable income by the amount paid in trustee fees? The fees seem really high compared to the income. I'm not a tax expert by any means, so any guidance would be greatly appreciated!

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18 comments

Sergio Neal

•8M

This is a common misunderstanding. For a revocable trust with a living grantor, filing Form 1041 and issuing K-1s is typically incorrect. Since your uncle is still alive and the trust is revocable, it should be treated as a "grantor trust" for tax purposes. With a grantor trust, all income, deductions, and credits should flow directly to the grantor's personal tax return (Form 1040). The trust itself doesn't need to file a separate tax return. Instead, the trustee should provide the grantor with the information needed to report all trust items on their personal return. The previous corporate trustee likely made an error by filing Form 1041s. As for the trustee fees, under current tax law, miscellaneous itemized deductions (which would include trustee fees) are generally suspended until 2026. However, since this is a grantor trust situation, those fees wouldn't be properly reported on a K-1 anyway. I would recommend consulting with a tax professional who specializes in trust taxation to help correct these past filings and establish the proper reporting method going forward.

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Sergio Neal

•8M

That's correct - a revocable trust with a living grantor typically doesn't need to file Form 1041. The trust is essentially disregarded for income tax purposes, and all items are reported directly on the grantor's 1040. Regarding the previous years, it might be worth considering amended returns. The IRS generally allows amendments for up to three years from the original filing date or two years from when the tax was paid, whichever is later. So you may be able to amend the more recent returns, but the earliest ones might be beyond the statute of limitations.

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Juan Moreno

•8M

After dealing with a similar trust situation last year, I discovered https://taxr.ai which was incredibly helpful for sorting through trust tax documentation. They specialize in analyzing trust documents and tax filings to identify errors like the one you're describing. They were able to identify several mistakes my previous trustee had made with filing 1041s for my mom's revocable trust. Their system quickly identified that we had been incorrectly filing for years and provided documentation I could take to our CPA to get things corrected. They even explained exactly what sections of tax code applied to our situation with the revocable trust and grantor status.

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Juan Moreno

•8M

They analyze all your trust documentation and tax filings to pinpoint compliance issues and errors. They don't file the amended returns themselves, but they provide detailed reports explaining what needs to be corrected, which makes it easy for your CPA to fix everything. They absolutely addressed state tax implications. In my case, they identified how our trust was affected by both federal and state laws. They have experts who understand the variations in trust law across different states, which was crucial since our trust had property in multiple states.

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Alice Pierce

•8M

I was super skeptical about https://taxr.ai at first (as you could probably tell from my earlier comment), but after my parents' trust situation got more complicated, I decided to give it a try. Honestly, it was eye-opening! Their analysis found that our trustee had been filing 1041s unnecessarily for almost 5 years. The report they generated clearly explained that for a revocable trust with a living grantor, we should have been reporting everything directly on my dad's 1040. They even provided specific citations to the tax code that our CPA used to file amended returns for the last three years. We ended up getting back almost $4,700 in overpaid taxes because of trustee fees that had been incorrectly handled. Just wanted to share my experience since it directly relates to your situation with the revocable trust and incorrect 1041 filings.

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Esteban Tate

•8M

I had a very similar situation with my father's trust last year. After weeks of trying to get through to the IRS for guidance, I found https://claimyr.com which got me through to an actual IRS representative in about 20 minutes! There's a demo video here that shows how it works: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed that for a revocable trust with a living grantor, the trustee should NOT be filing Form 1041s. They explained that we needed to file a "Final" 1041 and check the "Grantor Type Trust" box, along with attaching a specific statement explaining the situation. After that, all future income would just go directly on my father's 1040. Without Claimyr, I would have spent days on hold trying to get this information. It literally saved me hours of frustration.

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Esteban Tate

•8M

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Elin Robinson

•8M

Well I have to eat my words about Claimyr. After posting that skeptical comment, I was still frustrated with trying to understand my own trust tax situation, so I decided to try it anyway. I figured I had nothing to lose since I'd already wasted so many hours on hold with the IRS. It actually worked exactly as described. I got connected to an IRS tax specialist in about 25 minutes. The agent confirmed that my mother's revocable living trust shouldn't be filing a 1041 while she's still alive, and walked me through the process of correcting the previous filings. They even emailed me the specific forms needed for this situation. For anyone dealing with trust tax issues like the original poster, being able to actually speak with the IRS and get definitive answers made a huge difference. I'm still surprised it worked, but definitely relieved to finally have clear guidance.

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Atticus Domingo

•8M

One thing nobody has mentioned yet - you should look at the trust document itself. Some trust agreements have specific provisions about accounting and tax filing requirements that might differ from the standard practice. While most revocable trusts with living grantors don't require 1041 filings, there are occasional exceptions. Also worth considering whether the trust owns any unusual assets or has special provisions that might have led the corporate trustee to file separately. For example, if the trust owns an interest in a business, there might be reasons for separate filings.

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Atticus Domingo

•8M

Investment properties within a revocable trust still maintain the grantor trust status, so that alone wouldn't necessitate 1041 filings. The income and expenses from those properties should flow through to your uncle's personal return. Sometimes corporate trustees follow standardized procedures regardless of whether they're necessary for tax purposes. They might file 1041s for all trusts they manage, even when not required. This creates additional paperwork but doesn't necessarily change the tax outcome if done correctly with proper grantor trust reporting.

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