Yardley CPA Posted April 7, 2014 Report Share Posted April 7, 2014 I have little experience with Estate tax. Established client came to me this year and indicated that his Mom passed away in November 2012. Included in his tax packet is information from his Mom's estate. He is the Executor. The Mom owned the home she lived in and an additional home that was used as a vacation home. Both homes are relatively low value (FMV at DOD around $150K each.) In addition, savings account with a balance of around $100K. A few shares of MetLife stock. Besides this, no real assets. Client has sister who is also involved in the Estate. Everything is split 50/50 and they are on very good terms. Savings account and stock proceeds are to be distributed to a few nieces and nephews Home that the deceased lived in is now being rented (as of 10/1/13) Second home is unused and remains in the Estate. I am preparing the 1040 returns for both my long time client and his sister (new client for me this year.). I have included Schedule E's on both of their personal returns, each sharing the income and deductions on a 50/50 basis for the rental home. No 1041 was filed for 2012. I assume there was some interest and dividends received during 2012 from the date of death until the end of the year. I do have 1099 forms for interest and dividends for 2013 ($280 interest, $24 dividends) I assume I need to file a 1041 for 2012. I plan to file a 1041 for 2013. I also have to find out if a final return was prepared for the deceased. Questions: - I assume a 1041 is needed for 2012? - When preparing the 1041, does the bank account savings balance need to be reflected anywhere? - How about the value of the homes, is that reflected anywhere on the 1041? - I'm told interest and dividend income is to be distributed to my client and his sister. I will prepare a K1 for each? - The savings fund and stock proceeds will be distributed to the nieces and nephews during 2014. Does a K1 need to be prepared for each of those individuals? Any thoughts or suggestions would be greatly appreciated. Thank you! Quote Link to comment Share on other sites More sharing options...
schirallicpa Posted April 7, 2014 Report Share Posted April 7, 2014 If the estate has not sold the home that is being rented, then the rental activity is reported by estate, not individuals. It is then passed thru - with anything else - on K-1. No- you don't need the bank balances on the 1041. Nor the value of the homes. Keep in mind that you need the values of the homes at DOD for gain/loss calcs later on when estate sells homes. If no activity in 2012, don't need 1041. Depends if you had income or not for 2012. Interest and dividend are reported on 1041 and passed thru to individuals on K-1. Sale of stock in 2014 is also reported on 1041 and passed thru to the individuals on K-1. Remember that at DOD, estate is created and everything (income and assets) are the estates, not the beneficiaries' until distributed to the beneficiaries. Remember also, that estate generally takes everything at current market value, so this saves on many cap gain issues. It gets confusing to the client because they are receiving all this money from bank accts, etc and they think they owe "inheritance" tax on all that. They will basically only pay tax on interest, dividends, stock gain/loss, and net rental income that passes thru. Quote Link to comment Share on other sites More sharing options...
Yardley CPA Posted April 7, 2014 Author Report Share Posted April 7, 2014 Schiralli...thanks very much for your response. Should the estate normally be closed within a respective period of time? What happens if the homes are never sold? If the siblings continue to "use" them (one for rental and the other for personal use?) Does the estate remain open for that period of time? I would think not, but wanted to ask. Thank you again. May I PM you if I need to? Quote Link to comment Share on other sites More sharing options...
jklcpa Posted April 7, 2014 Report Share Posted April 7, 2014 What does the will say is supposed to happen with the residence and that vacation home? Was the estate supposed to sell them, pass to one or more of the beneficiaries? Quote Link to comment Share on other sites More sharing options...
Yardley CPA Posted April 7, 2014 Author Report Share Posted April 7, 2014 I'll have to look into that, JKL. Thank you. Quote Link to comment Share on other sites More sharing options...
michaelmars Posted April 7, 2014 Report Share Posted April 7, 2014 IF THE estate distributed the homes to the 2 bene's then schedule e [or actually a 1065] is appropriate. the estate does not have to sell the homes to get them out of the estate. a new deed needs to get filed. Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted April 7, 2014 Report Share Posted April 7, 2014 You need to read the trust document and the will. This will answer most of your questions. You need to identify the beneficiaries of the trust. If the nieces and nephews are just getting a testimentary transfer of assets, they do not get a K-1. Only the income beneficiaries will get a K-1. First thing you need to do though is identify the benficiaries. You need to talk to your client about the disposition of the trust assets. If they are not going to be disposed of (sold or distributed), then the trust will stay open indefinately and the income or loss will be distributed to the beneficiaries via the K-1. The trust can sell the assets and distribute the gains, or the trust can distribute the property and let the beneficiaries sell and recognize the gain. There are a lot of questions that the trust document will help you with. A good consultation with the executor will fill in the rest of the plan of action. Good luck. This is where good interviewing skills and planning will help both you and your client. Document everything they say and you say to them. The tax return and the K-1's will be the simple part of your engagment. Tom Hollister, CA 1 Quote Link to comment Share on other sites More sharing options...
Yardley CPA Posted April 7, 2014 Author Report Share Posted April 7, 2014 Thanks very much for all of your feedback. I appreciate it! Quote Link to comment Share on other sites More sharing options...
Gail in Virginia Posted April 7, 2014 Report Share Posted April 7, 2014 And if the date of death was November 2012, you can begin the fiscal year for the estate on November 1, 2012 through October 31, 2013 and they will only be a few months past due on the return as opposed to a year. However, look closely at the income and expenses, and the timing of each, to determine the best fiscal year end for the estate. That will be established with the first 1041 filed, so if nothing has been filed yet you can play with dates a little bit to get the best results. 2 Quote Link to comment Share on other sites More sharing options...
joanmcq Posted April 7, 2014 Report Share Posted April 7, 2014 Tom, there was no indication that a trust is in play, just the estate. It gets confusing because they both file 1041s. Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted April 7, 2014 Report Share Posted April 7, 2014 Good point. I read that into the post. It is not there. Thanks for catching that. Tom Hollister, CA Quote Link to comment Share on other sites More sharing options...
Crank Posted April 7, 2014 Report Share Posted April 7, 2014 FYI. While not an income tax item but PA imposes an inheritance tax on children of ~4.5% on ALL assets including the child's portion of any joint accounts held with the deceased. I believe the tax is due within 9 months of the DOD. Possibly this was handled by an attorney if there was a probated will. Quote Link to comment Share on other sites More sharing options...
joanmcq Posted April 7, 2014 Report Share Posted April 7, 2014 Yeah, I wished my dad died somewhere else, like CA. Damned inheritance tax! Quote Link to comment Share on other sites More sharing options...
Yardley CPA Posted April 7, 2014 Author Report Share Posted April 7, 2014 Thanks again for all the responses. This is a New Jersey Estate. Quote Link to comment Share on other sites More sharing options...
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