Who Needs to File a Michigan Fiduciary Income Tax Return?

By: Sarah Meinhart, estate planning and trust attorney in Ann Arbor

A trust can hold any asset, including money, land, personal property, shares of ownership in a company, vehicles, etc. Typically, a trust is revocable, allowing the grantor to withdraw trust funds whenever they need too. 

The Internal Revenue Service (IRS) requires trustees to file a 1041 Form, the fiduciary income tax return, applies to both trusts and estates if a trust earns more than $600 in a tax year. Even if no tax is due, an informational MI-1041 must still be submitted. However, some trusts are exempt from this filing requirement, including:

1. Tax-exempt trusts, unless they generate unrelated business income attributable to Michigan.
2. Non-resident trusts with Michigan-sourced income that is less than the federal exemption deduction.
3. Grantor trusts, where the grantor (or their representative) reports the trust’s income, deductions, and credits on their Michigan Individual Income Tax Return (Form MI-1040) instead of filing Form MI-1041.
4. Irrevocable trusts created upon the grantor’s passing, provided the trust meets all Michigan residency requirements, all beneficiaries are non-residents, and the trust is neither administered nor held within the state.

For calendar year estates and trusts, the fiduciary must file Form 1041 by April 15, 2025. If a refund is due, it must be claimed by filing a return within four years of the original deadline. Trustees should retain a copy of the return and all supporting documentation for at least six years. For guidance on trust taxation, consult a trust lawyer in Ann Arbor who can help ensure compliance with state and federal laws.

A Simplified Guide to Understanding Trust Taxation: 

While the Grantor Is Alive

As long as the grantor is alive, they can continue to collect income and principal from the trust. However, the IRS taxes the trust’s income as part of the grantor’s personal income tax return.

Since the trust can open bank accounts and make investments using the grantor’s Social Security number, a separate tax return for a Revocable Living Trust is not necessary. While the grantor is responsible for taxes on the trust’s income, the trust remains the legal owner of its assets. This structure helps avoid probate upon the grantor’s death.

After the Grantor’s Passing

The trust remains intact after the grantor’s death and continues to hold all trust assets. However, the tax implications shift, affecting both the estate and the trust’s beneficiaries.

The executor of the grantor’s estate is responsible for filing the grantor’s final tax return, reporting any income earned up to the date of death. At this point, the trust may need to obtain a separate Employer Identification Number (EIN) for tax purposes. This can be obtained directly from the IRS website.  An attorney can assist with properly obtaining an EIN.  

Special Circumstances

If a grantor becomes mentally incapacitated, the successor trustee named in the trust documents may choose to obtain an EIN for the trust. This tax ID can help simplify the trustee’s fiduciary responsibilities and reduce tax liability.

Don’t Let Trust Taxation Overwhelm You

If you have questions about an existing trust, consult a trust attorney in Ann Arbor who can provide tailored legal advice. We’re here to help you navigate trust taxation and estate planning. For personalized guidance, call us at (734) 665-4441 or submit a contact form.

***This is not to be construed as tax advice.  Attorneys are PSED Law do not practice tax law.  Please see the advice of a CPA for professional advice.