A nominee trust is a trust in which the trustee holds legal title to the trust property for the trust's beneficiaries, but the beneficiaries exercise the controlling powers, and the actions that the trustees may take on their own are very limited. Such trusts are a common device for holding title to real estate, and afford certain tax advantages. A nominee trust is not a trust in the strict classical sense, because of the trustee-beneficiary relationship. Despite a nominee trust's nontraditional relationship between trustee and beneficiary, such a trust must still adhere to the rule that no trust exists when the same individual is the sole settlor, sole trustee, and sole beneficiary. The trustees of a nominee trust act at the direction of the beneficiaries.
Alabama Nominee Trust
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FAQ
When trust beneficiaries receive distributions from the trust's principal balance, they don't have to pay taxes on this disbursement. The Internal Revenue Service (IRS) assumes this money was taxed before being placed into the trust. Gains on the trust are taxable as income to the beneficiary or the trust.
Limitations of Nominee Trusts It will do absolutely no good regarding MassHealth /Medicaid Planning, because it is not really a transfer in their eyes. Also, you cannot take a Homestead declaration on it, so creditors can attach it in a lawsuit, assuming liability.
A nominee trust is typically established to hold title to real estate and is disregarded for federal income tax purposes (i.e., a separate return, such as a 1041, is not required).
The securities are held in trust and the nominee is the legal owner, but you hold on to real ownership as the beneficiary. The broker can buy and sell on your behalf, but your funds are protected if the brokerage goes out of business or your broker tries to swindle you.
The trustee may have to file a return if the trust meets any of these: The trustee or beneficiary (non-contingent) is a California resident. The trust has income from a California source.
In a Nominee Trust the beneficiaries direct the trustee and may even serve as the trustee. Also, unlike an irrevocable trust, the beneficiaries of an NT may terminate the trust at any time and take full ownership of the trust property as tenants in common.
Bottom Line. Living trusts have to file tax returns in most cases if they have $600 or more in income for a given tax year. They may also have to file if the living trust is a grantor-controlled trust or a revocable marital trust and both spouses are still living. Trusts that file tax returns do so using Form 1041.
The nominee trust is not a trust - it is an agency arrangement in which the "trustees" are agents for undisclosed principals. A true trust is an arrangement under which a "grantor" or "donor" transfers property to a trustee to use for the benefit of one or more beneficiaries.
