baystorm

If the estate had no income for the second year - then there is no need to file an estate income tax return for the second year. I would mark the 1041 that you file for year 1 as 'final'

The only reason that I see that you may want to file a second 1041 is for the beneficiaries to deduct some of the final expenses/costs of administering the estate - depending on this amount may not be worth the trouble and additional costs in your fees.

good luck

I'm having a case of "brain freeze"

Can the amount of property taxes paid by the bank as part of mortgage payments (on 1098)be used by the taxpayer on schedule L since they do not have enough to itemize? They are married and the mortgage is for their principle residence.

Can someone comment on this? I want to say YES since it is their property and they are liable even though the bank pays it as part of their mortgage.

Thanks,

Larry

The step up basis would be at the date of death of the decendent or the alternate valuation 6 months later. Depending on how much is money is involved it may be beneficial for the trust to spend some money on a professional appraisal.

Good luck and Have a great week

In reply to your second question - I have found it difficult to have 1099 reissued by the payor when there are mistakes. I have done this in the past is report the rent on Schedule E and then take a corresponding deduction on Schedule E - it washes out - and then just report on the trust income tax return.

In regards to the first question - where both properties jointly titled in each trust? or did one trust hold the rental and other trust hold the non-rental?

Whomever is the executor of the last will and testament would sign the personal tax return form 1040. This is a person who would have to be appointed by the local probate court. Even though the decedent had a trust, they more than likely also had a Will. If Will can not be found, then the granddaughter can petition the local court to be appointed the executor. Also look at Form 56

good luck

No, I'm not an attorney. I'm just trying to plod through my 1st 706.

I do need to clarify one point. The decedent COULD change the beneficiary on both benefits (VA and pension). But that was the only control factor. The amounts are relatively small -- $5000 from the VA & $10000 from the retirement plan.

It just seems like those 2 sections of the 706 instructions contradict each other.

Generally if the decedent could change the beneficiary then he had 'incidents of ownership' over the policy - look at code section 2042(2); Reg section 20.2042-1©

good luck

I just want to make sure I'm reading the instructions correctly. They say to report insurance proceeds if they for the benefit of the estate. It states that there must be an obligation to use proceeds to pay taxes, debts or charges. The other reportable insurance is if it is receivable by a beneficiary other than the estate. In this case the decedent had to be owner of the policy.

In my client's case, the only insurance and death benefits were from the VA and pension. In neither case was there any requirement about how to use the money and the client did not own either policy. The only control factor the decedent had was designation of the beneficiary.

When listing the incidents of ownership in a policy, between the next to last incident and the last incident, it states "AND." However in the paragraph leading to the list of incidents, it states the incidents of ownership in a policy include ANY of the items listed.

I'm thinking they shouldn't be included because of the "AND." Also decedent had no control of the policy except selecting the beneficiary. Who else would pick the beneficiary? (OK there are those policies that some companies take out on their employees and then name the company as beneficiary. -- Those definitely should not be included on a 706 Sch J.) Decedent couldn't sell it, cancel it, use it for a loan or anything else.

If either or both of these benefits are included, the description wants the name of the insurance company and the policy #. Where would the client find this since the decedent did not own either policy?

Thanks.

I must admit that it has been a year or two since I had to file a 706 - but based upon your post I would say that the insurance proceeds from the VA would not have to be included on the return. All assets that a decendent had "incidents of ownership and control over" are included in the gross taxable estate of a decendent. If he could not change a beneficiary, assign the policy, cash in the policy, take a loan out against the policy - then he would not have incidents of owernship and control over the policy and as such the proceeds should not be included on the 706. In any event I assume the death benefits are not that much - by the way are you also an attorney?

good luck

I just want to make sure I'm reading the instructions correctly. They say to report insurance proceeds if they for the benefit of the estate. It states that there must be an obligation to use proceeds to pay taxes, debts or charges. The other reportable insurance is if it is receivable by a beneficiary other than the estate. In this case the decedent had to be owner of the policy.

In my client's case, the only insurance and death benefits were from the VA and pension. In neither case was there any requirement about how to use the money and the client did not own either policy. The only control factor the decedent had was designation of the beneficiary.

When listing the incidents of ownership in a policy, between the next to last incident and the last incident, it states "AND." However in the paragraph leading to the list of incidents, it states the incidents of ownership in a policy include ANY of the items listed.

I'm thinking they shouldn't be included because of the "AND." Also decedent had no control of the policy except selecting the beneficiary. Who else would pick the beneficiary? (OK there are those policies that some companies take out on their employees and then name the company as beneficiary. -- Those definitely should not be included on a 706 Sch J.) Decedent couldn't sell it, cancel it, use it for a loan or anything else.

If either or both of these benefits are included, the description wants the name of the insurance company and the policy #. Where would the client find this since the decedent did not own either policy?

Thanks.

It should be a matter of State Law in regards to whether or not they have to go through a "judicial" process to terminate the marriage. Based upon past experience I would suggest that you make sure you have an engagement letter or just prepare the return for one of the spouses but not both.

I had a situation several years ago whereby I was preparing the couples return for about 8 or 9 years and then they got a divorce. I prepared two separate tax returns but of course the one spouse was not happy on how I allocated some of the deductions between the two returns and it started to get ugly (even though I did everything proper)

My policy is now that when a couple is divorced, getting divorced, etc., I will only retain one spouse as a client and tell the other spouse (in a nice way) to go elsewhere.

good luck

All I can say that it is nice to be on a real professional forum unlike that other forum that seems to have alot of inexperienced preparers who are asking simply basic questions that any professional tax preparer should know.

Thank you to all and I hope you all have an excellent season!

Over the last few years I have been getting more referrals, etc from individuals who have not filed past tax returns. I currently have a client who has not filed since 2000. I always get a retainer up front and makes sure that I have an engagement letter with the client. If the client owes the IRS money and the client is going to want you to negotiate with the IRS, then the retainer is even larger. However, I no longer accept their original source docs unless they have also given me a retainer. I have some client(s) who dropped off a box of records - they never dropped off a check so I never even started their tax return. But their original source documents are taking up space in my office and can't find or locate them to pick up the records yet I do not want to shred them.