Can a trust beneficiary assign his share of trust income to his own single-member LLC for Illinois tax reporting purposes?

Plain-English summary

Two brothers are co-trustees of their late father's Illinois trust. The trust document names both brothers as beneficiaries of the cash-rent income from a small parcel of agricultural land the trust owns. One brother registered a single-member LLC and wants his share of that trust income assigned to the LLC, so that both the federal K-1 and the Illinois Schedule K-1-T would be issued to the LLC (using its EIN) instead of to him personally (using his SSN). The brothers asked IDOR to confirm this is proper and, if so, what else the trust would need to file or do.

IDOR did not answer the question they actually asked. The Department pointed out that the trust instrument names the two brothers as beneficiaries, but the request "does not indicate whether the trust instrument permits" modifying beneficiaries or assigning a beneficial interest to a single-member LLC. IDOR characterized that as "the necessary threshold question," and explained it is fundamentally a matter of trust law, not tax law, so IDOR left it undecided.

What IDOR did offer was conditional: if the trust instrument permits assigning the beneficial interest to the LLC, then Illinois will simply follow whatever federal income tax treatment applies to the trust. In that scenario, the trustees would file Form IL-1041 and Schedule D for the trust, and issue Schedule K-1-T(s) to the trust's actual beneficiary(ies) — making sure the information on Schedule D and Step 2 of the Schedule K-1-T(s) accurately reflects who those beneficiaries really are. The letter never says whether an LLC can even count as a "beneficiary" if the trust document doesn't already name it that way; that determination is left entirely to the unresolved trust-law question.

What this means for you

Trust beneficiaries and trustees

If you're a trust beneficiary hoping to redirect your share of trust income to your own single-member LLC, this GIL shows Illinois will not tell you whether that's allowed. That's a question about your trust instrument — whether it permits modifying beneficiaries or assigning a beneficial interest — and it needs to be answered under trust law (typically by reviewing the trust document itself or consulting a trust/estate attorney), not by asking the tax department. Only after that threshold question is resolved does a tax-reporting question even arise.

Accountants and tax preparers

Don't read this GIL as approval to swap a beneficiary's SSN for an LLC's EIN on Schedule K-1-T without first confirming the trust instrument actually permits the assignment. If it does, IDOR's guidance is straightforward: Illinois follows the federal income tax treatment of the trust, so the trustees still file Form IL-1041 and Schedule D, and the K-1-T(s) must accurately name the trust's real beneficiary(ies) in Schedule D and Step 2. If the trust instrument is silent or doesn't clearly allow the assignment, this letter gives no cover for reporting the LLC as beneficiary instead of the individual.

Common questions

Q: Did Illinois approve assigning trust income to a beneficiary's single-member LLC?
A: No. IDOR explicitly declined to decide that, because it depends on whether the trust instrument itself permits modifying beneficiaries or assigning beneficial interests — a trust-law question the requesters didn't address, not a tax-law question IDOR resolves.

Q: What did IDOR actually say, then?
A: Only a conditional answer: if the assignment to the LLC is permissible under the trust instrument, Illinois will follow the federal income tax treatment given to the trust. The trustees would file Form IL-1041 and Schedule D, and issue Schedule K-1-T(s) that accurately reflect the trust's actual beneficiary(ies).

Q: Can a single-member LLC be a trust "beneficiary" for Illinois tax purposes?
A: The letter doesn't say. IDOR never addressed whether an LLC can be treated as a beneficiary in the first place — it left that entirely to the unresolved trust-law threshold question.

Q: Who decides whether the trust instrument allows this assignment?
A: Not IDOR. That's a matter of trust law, meaning the trustees need to look at the actual trust document (and likely consult a trust/estate attorney) to determine whether modifying beneficiaries or assigning beneficial interests is permitted.

Citations and references

Regulations cited:

• 2 Ill. Adm. Code 1200.120(b) and (c) (defines a General Information Letter as general information only, not a statement of Department policy, and not binding on the Department)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/income-tax/2022.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/income-tax/2022/it22-0004-gil.pdf

Original ruling text

IT-22-0004 03/24/2022 TRUSTS
Illinois will follow the federal income tax treatment afforded to a trust for
State income tax purposes. (This is a GIL.)
03/24/2022
EMAIL1
EMAIL2
Re:

Illinois income tax

Dear NAME:
This is in response to your letter dated February 9, 2022, in which you request
information regarding Illinois income tax. The nature of your request and the
information you have provided require that we respond with a General
Information Letter (“GIL”), which is designed to provide general information, is not
a statement of Department policy, and is not binding on the Department. See 2
Ill. Adm. Code 1200.120(b) and (c), which may be found on the Department’s
web site at www.tax.illinois.gov.
Your letter states as follows:
The purpose of this letter is to request a private letter ruling or legally
binding letter (whichever instrument/term is appropriate) to clarify the
assignment of income by a trust beneficiary to his/her single member LLC.
The specific situation is my brother (NAME) and I are co-trustees of our
father’s Illinois trust. The trust documents list NAME and me as
beneficiaries of the cash rent income on a small parcel of agricultural land.
The land is owned by the trust.
NAME has registered a single member LLC and wants to assign his
income from the trust to that LLC and have the Federal K-1 and the IL K1-T made out to that LLC (and the LLC’S EIN) instead of himself and his
SSN.
We would like a ruling from your office as to whether the use of his LLC on
the trust’s returns K-1 and K-1-T is proper or not.
If this is proper, is there anything else the trust needs to file or do to reflect
this assignment (what and with whom)?
In the private letter ruling or legally binding letter, could you please provide
the statutes or other citations for our records that are relevant to, and/or
regulate, this situation?

Since NAME and I are both spending the winter away from our homes,
please reply by email to EMAIL1 and EMAIL2 to avoid any delay in receipt
of your reply.
Thank you in advance for a prompt reply so that we can proceed with filing
the trust returns in a timely manner.
RULING
You represent that the trust instrument lists you and your brother as beneficiaries
of the trust, however you do not indicate whether the trust instrument permits the
modification of beneficiaries or the assignment of beneficial interest in the trust to
a single member LLC.
While the ultimate issue concerns the Illinois income tax treatment of a trust, the
necessary threshold question involved is a matter of trust law. If you would
conclude that the assignment of beneficial interest in the trust to a single member
LLC is permissible under the trust instrument, then Illinois will follow the federal
income tax treatment afforded to the trust for State income tax purposes.
Therefore, on behalf of the trust you would file Form IL-1041 and Schedule D
with the Department, and complete and submit Schedule K-1-T(s) to the
beneficiary(ies) of the trust, ensuring that all information in Schedule D and Step
2 of the Schedule K-1-T(s) accurately reflect the beneficiary(ies) of the trust.
As stated above, this is a GIL. A GIL does not constitute a statement of
Department policy that applies, interprets or prescribes the tax laws, and it is not
binding on the Department.
Sincerely,
Jennifer Uhles
Associate Counsel (Income Tax)

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