revocable trust and estate question

[schirallicpa]

2 things are going on, and I'm not sure if I understand how to treat the trust stuff: And I have tax ID question. Heres the scoop:

There was an annuity that had not been placed into the trust. So when Mary died, an estate was set up to collect the annuity income. The estate was assigned the EIN of the trust. I know that an estate return should be filed for the taxable portion of the annuity. Not sure if the estate should have a differrent EIN - its a different animal. I think.

The revocable trust - after Mary died - sold real property that it had taken in 1994.

Now - I am no expert in trusts, but I thought that the purpose of the revocable trust was to transfer property to the beneficiaries at death. Wouldn't the real property first transfer, and then the bene's sell the land? When I asked the trustee, she said "well - how were we all to own land together. Of course the trust had to sell it." Hmmmm. Do I have a tax return for the trust for the long-term gain on the sale of the real property? And if I do, I will have the EIN on the trust return being the same as the EIN on the estate return.

Or should this land sale be on the estate return?

I think this was just not handled correctly by our favorite local attorneys.

I think I'm going to add another entry to the "dear client" topic.

[OldJack]

When Mary died the annuity should go to the beneficiaries of the annuity. I guess you are saying there were no beneficiaries so it became payable to the estate? It seems strange that an annuity had no beneficiaries listed. Are you sure that the beneficiary of the annuity is not the trust? If not the annuity would go by a will (or if no will) and would have to be probated to determine beneficiaries of the estate.

I would think you would file a 1041 for the estate and annuity as distribution of the income has to still be determined and my not be the same beneficiaries as the trust. Until estate beneficiaries are determined by the probate judge the estate 1041 would have to pay any income tax due.

The Trust should file a 1041 and report the sale of the property and either pay the tax or pass the net gain/loss through to the beneficiaries on the K-1 for them to report on their 1040.

You need to check further regarding the annuity.

[Dale in IN]

Schiralli:

You have 3 tax returns to prepare . A 1040 For Mary up untill the date of her death. When Mary died thr REVOCABLE TRUST became IRREVOCABLE (cannot be changed) and it is up to the Trustee to sell the property or distribute the Assets. So if the property was sold then that requires a 1041 for the trust with the proceeds distributed with k-1s. While Mary was living the REVOCABLE TRUST was treated as a dis reguarded enity and the trust income was included with her 1040.. AS for the Annuity if there were no benificeries then it would go into the Estate as Jack has stated orto the benificeries. If it was a Life only annuity There is no Annuity the Issuing company keeps the balance.. And if it went into the Estate you are right the Estate has to have a seperate EIN number. You have 2 different Enities.And a 1041 has to filed for the Estate with K-1s. If the Estate has not been settled you can choose a tax year beginning the day after Mary's death.

[jainen]

>>this was just not handled correctly<<

I'm not convinced anything is wrong. Living trusts typically include a pour-over will for probate assets not previously placed into the trust (for which there are several perfectly good reasons). Since the annuity was cashed under the trust's EIN, that may be what happened.

If all the beneficiaries agreed to sell the property, it made sense for the trustee to do so with a single signature. By the way, a revocable living trust is a disregarded entity so the property would still be in Mary's taxable estate and get a basis step-up. So read the trust.

[OldJack]

Agree with Jainen's comments on the ability of a trust to include other items, however, the trust must state that ability and the asset must be free from any probate court proceedings.

[BulldogTom]

I am still not sure what is going on here. Not sure if there is enough information to give you any type of answers. I think you need to do some investigation first. Start with a list of questions, and then assign a name or title to who should be answering the question. Here is a partial list to get you going:

Do I have a copy of the revokable living trust? Who are the trustee and the beneficiaries?

What assets are in the revokable living trust at Date of Death? Is there any income being generated from those assets?

What Assets were not in trust? Is there any income being generated from the assets not in the trust?

Does an estate return need to be filed on the size of the assets, or on the income from the assets not in the trust?

Who is the trustee of the estate?

Do any of the assets not in the trust need to go through probate?

Start with these, and add a few more when you find out these answers, and I think you will have a good handle on what needs to happen.

And I like Jainen and Old Jack's answers so far.

Tom

Lodi, CA

[schirallicpa]

You guys are awesome! Thank you for your insights. I know what to do now.