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A Little Help on a Trust


Tax Prep by Deb

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This kind of, sort of, should be, a rather simple trust.  At least that is what I am hoping for.  My client is the trustee of a trust (belonged to his mother who passed away 02/2018) and has already got the tax ID number for the trust (Yah).

To start with the preparer who prepared the taxes last year has already entered her date of death on the 2017 tax return (she died before it was filed).  I have some documents that came under her tax id number, (social security, pension, and some investment accounts).  My thinking is I need to prepare a personal return for her for all income up to date of death correct?  That's the easy part, most of the income listed on her ss number for her investment accounts are showing transactions after date of death.  Do I report based on the tax ID number (keeping all income together under that ID) or do I separate out based on date of death and report everything after death on the trust (even though the tax ID numbers will be different)?

Any help will be greatly appreciated!

Deb!

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Prior to death it was a revocable living trust.  From what I have been told the only assets at time of death the trust had was stocks.  The stocks were not sold by the trust but was split up and distributed to each person listed on the trust.  I'm still looking everything over, but was hoping for some guidance on starting.

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Get the trust document and read it.  Typically, revocable living trusts say something on the order of "upon my death, all my assets go into the trust and get split according to Schedule appended" or something.  That should tell you how to proceed with all the stuff that went in to the trust.  

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The IRS will be looking for the income reported in the deceased's SS# on her return, so you have to include it there or expect a letter.  On the next line I usually subtract out the after-death income with the description "reported by XXX trust EIN ###."  Then report that amount on the trust.  I have never gotten an IRS letter doing it this way.

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19 hours ago, Tax Prep by Deb said:

To start with the preparer who prepared the taxes last year has already entered her date of death on the 2017 tax return (she died before it was filed).  I have some documents that came under her tax id number, (social security, pension, and some investment accounts).  My thinking is I need to prepare a personal return for her for all income up to date of death correct?  That's the easy part, most of the income listed on her ss number for her investment accounts are showing transactions after date of death.  Do I report based on the tax ID number (keeping all income together under that ID) or do I separate out based on date of death and report everything after death on the trust (even though the tax ID numbers will be different)?

 

Having the correct DoD on her 2017 return is fine.

Yes you need a personal return for 2018 for all income up to the DoD.

Trust income before the date of death goes on that personal return unless they filed a separate trust return every year which is rare.

Income after death in the trust, you need to report it on the irrevocable trust return.

Income earned that isn't in the trust but is earned after death needs to go on an estate return.

 

I've never seen it legally handled that the trust can just declare all assets go into the trust upon death. You need to title it that way BEFORE death. Things like insurance or an IRA where it is distributed via a beneficiary form can do that but generally not bank accounts and so forth. They could have used "transfer on death" but why?

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Only titled assets go can go into a trust.  It is called funding the trust.   For instance, if a home is not titled in the name of the trust, it is not part of the trust, .  However, It is still part of the estate and a  trust can make election to be treated as an estate.   All trusts will say that all non-trust assets are  to be distributed by a will.  These are called pour-over wills and are included in the trust papers.

 

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On ‎3‎/‎20‎/‎2019 at 1:49 PM, Roberts said:

 

 

I've never seen it legally handled that the trust can just declare all assets go into the trust upon death. You need to title it that way BEFORE death. Things like insurance or an IRA where it is distributed via a beneficiary form can do that but generally not bank accounts and so forth. They could have used "transfer on death" but why?

The trust cannot declare it for non-trust assets not already in it, but the will can do this.  If everything is to be distributed to the heirs, then the trust should use the election to be treated as the estate.  This requires only one tax return, plus you can then elect a fiscal year as well.  You are correct in reporting all pre-DOD income on the final 1040, and all post-DOD income on the estate return, regardless of what the 1099 says.  Brokerages rarely change this over on a timely basis, sometimes never.  Depends on the executor. 

 

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On ‎3‎/‎19‎/‎2019 at 7:35 PM, SaraEA said:

The IRS will be looking for the income reported in the deceased's SS# on her return, so you have to include it there or expect a letter.  On the next line I usually subtract out the after-death income with the description "reported by XXX trust EIN ###."  Then report that amount on the trust.  I have never gotten an IRS letter doing it this way.

Any Idea how to do this in Drake Software?

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