My brothers and I recently received about $20,000 dollars from a trust fund that my grandparents set up when we were kids. It was set up as a college trust fund with whatever remained in the trust fund (after college) being distributed evenly when one of the parents passed away. The trust fund was invested in stocks and bonds until it was recently liquidated and dispursed to the grandchildren. The money was not taxed prior to the money being direct deposited. My questions are:

1) Do we have to list this on our income tax form?
2) Will we receive a particular type of form in the mail? (1099G, etc...)
3) Under what part of the federal income tax form would this be listed?

Any help would be greatly appreciated :)

There is no federal tax on inheritances. Most of the states do not tax inheritances. For your state, check at the state web site. For more information: Your U.S. Tax Return: Tax on Inheritances (http://taxipay.blogspot.com/2008/02/tax-on-inheritances.html)

MukatA:

This is NOT an inheritance; it is a trust fund distribution, which is, in all likelihood, subject to income taxes.

GhostofWinter:

You will probably get a Form 1099-R from the trust custodian, which will detail how the distribution needs to be taxed.

I recommend that you get professional tax help for your 2008 tax return. Reporting trust distributions can be tricky,