If the creator of a trust fails to notify the beneficiaries of the existence of this trust during his or her lifetime, then the administrator of his or her estate must notify them. Establish a reliable line of communication with each beneficiary and get his or her address, Social Security number, and birth date. This information will help you properly file taxes and create an appropriate payout schedule for the trust.
There are no formal steps to follow when notifying beneficiaries. Give the beneficiary all of your contact info and urge him or her to contact you as soon as possible. You cannot begin making distributions until you’ve set up a reliable form of communication with the beneficiary. Once you do make contact with the beneficiary, there is some necessary information that you will need to retrieve from him or her.
Tax reporting information: Obtain addresses and Social Security numbers
You need to obtain the beneficiary’s address and Social Security Number (SSN). Beneficiary payments will probably contain elements of taxable income. Because he or she must pay the tax on that income, you shouldn’t make any payments without obtaining tax reporting information upfront.
You can’t force a beneficiary to give you his or her SSN, and you can’t withhold payments indefinitely. If you’ve made distributions without first receiving the beneficiary’s SSN, you may be forced to file a tax return for the trust, Form 1041, that is incomplete.
File the return anyway, making sure that you include as much information, such as the beneficiary’s address, as you can on Schedule K-1. If you can show the IRS you made a concerted attempt to obtain the information, you should be off the hook for filing an incomplete return.
Verify beneficiary's date of birth
You need to know the beneficiary’s birth date. Many trusts are created with payout schedules based on ages. As trustee, you need to know when the beneficiary has reached a certain age and adjust the mandatory payments accordingly.
Knowing the beneficiary’s age also helps you choose appropriate investments, allowing you to minimize certain types of income when the beneficiary is in a higher tax bracket. If a beneficiary is under the age of 19 (24, if a college student), he or she may be subject to the Kiddie Tax on investment income, which charges tax on the child’s income at his or her parents’ highest applicable rate.
All income received from a trust may be subject to this additional tax. After the beneficiary has left college and is earning, you can then change the investment mix to one that produces more income taxed at a lower rate.
