Trust Marketable Assets
Most trust investment portfolios consist of marketable stock and bond securities. Since the marketable securities are on a trust operations platform, a 1099 does not issue to the trust for these securities. A trust operations platform is similar to how brokerage accounts operate. When a client has a brokerage account he will receive one Form 1099 prepared by the brokerage firm for all securities held in his account. Irrevocable trust operations are similar, but the trust beneficiaries will receive a Form K-1 instead of a 1099.
Trust Non-Marketable Assets
Certain trust asset types will receive a Form 1099, which the trust tax accountant uses to prepare the trust tax return Form 1041. For example, irrevocable trust assets like certificates of deposit that do not trade on the public exchange market will issue a Form 1099 to the trust. If the trust holds insurance policies that mature during the taxable year, the trust will receive a Form 1099 to report any taxable interest the insurance policy earned prior to payout of the policy to the trust.
There are cases where a trust holds an interest in a limited partnership that does not trade on the public market exchanges. Limited partnerships do not issue Form 1099s to the trust, since they file a tax return that issues a Form K-1 just like an irrevocable trust. An irrevocable trust tax return Form 1041 almost always has a delay in preparation when the trust owns limited partnership interests, since Form K-1s do not have the same deadlines as Form 1099s. The trust tax accountant cannot complete the trust Form 1041 until receipt of the limited partnership K-1, which causes a delay in irrevocable trust beneficiaries receiving tax information for personal tax returns.
Consult the Trust Tax Accountant
If a trust beneficiary has any questions regarding trust tax information, he should consult with the tax accountant that is responsible for preparation of the trust tax return Form 1041. It is also helpful for a trust beneficiary to consult his personal tax preparer and arrange a consultation between his personal tax preparer and the trust tax accountant. This will ensure there are no surprises at the end of the trust tax year that could create penalties with the Internal Revenue Service.