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Christian

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A client set up a trust for her mother who was in mental decline fearing she might need to be placed in a nursing home and would exhaust her assets. Under advice of her trust attorney she used her mother's social security number instead of obtaining an ein for the trust. All tax reporting forms indicating a trust used her social which worked ok. The mother died in December 2018. Th client left the trust in place insted of disolving it with the result that after her death income has fallen into the trust. I normally do not prepare trust returns but in reviewing Form 1041 there is a checkbox to use for that purpose. The income is dividends and interest and will simply be shown as passed through to the heir for her return. The trust will be disolved this year with assets being passed to the client. My question do I use the calndar year of 2019 for the trust year? If not since she died in December 2018 what twelve month period do I indicate ?

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I would suggest you get the trust document. This is always my first approach. While it looks like your just looking for what the trust date should be, there maybe some information in the trust document that could be very helpful when preparing the 1041. Also, do you know what type of trust this is? Check if the information below is helpful

When a grantor – a living-trust creator – dies, the trust becomes irrevocable. An irrevocable trust is an independent taxpayer in the eyes of the IRS, required to file its own tax return. Responsibility for completing the paperwork falls to the trustee appointed by the grantor. If you're the trustee, you may be able to take almost a year to file.

This is the link https://finance.zacks.com/tax-return-due-trust-person-dies-11236.html. I copied and pasted this cause I couldn't stand the liberty tax ads in my face.

The tax return due date for a trust depends on the year-end for that trust, which is based on the grantor's death date.

Trust Return Due Date

As trustee, you have a lot of flexibility in when to submit the first tax return. The first step is to pick a closing date for the trust's tax year, known as the trust year-end. Suppose the grantor dies July 14. Some trusts must choose a calendar tax year ending Dec. 31. Other trusts can use a fiscal year with an ending date as far ahead as 11 months from the death. In this case, that would be June 14 of the following year. The instructions for Form 1041 explain which trusts have that option.

Finding the Right Form

Once you set the closing date, you have 3.5 months after that to turn in the return. If you pick Dec. 31, for instance, that gives you until April 15. The form to file is 1041, the income-tax return for trusts and estates. Whatever date you set for the end of the first tax year, that will be the date you use for future tax returns too, assuming the trust is set up to last a while.

Revocable Trust Deadlines

If the trust was revocable during the grantor's lifetime, you and his executor can submit one tax return instead of two. If you and the executor both agree, she can file a 1041 for the estate that includes the trust's income. You provide the trust's financials, but the executor deals with the IRS. To take this option, you have to file Form 8855 before the executor files the estate's first 1041. The decision is irreversible.

When to Pay Estimated Tax

Even if you postpone filing the 1041 until next year, estimated tax payments may be due a lot sooner. If you think the trust's going to owe $1,000 in income tax for the year, the trust may have to pay estimated tax. Estimated tax payments are due quarterly: in April, June, September and January of the following year, though the schedule obviously depends on when the grantor dies. The Form 1041 instructions spell out which trusts have to make estimated payments.

 

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That information is most helpful. The daughter is the trustee so I will work with her. There is a glitch in that the lawyer setting up the trust advised that the trust could use the mother's social security number for the trust. This caused no problem with her final return. However, an insurance company refused to pay on a policy until the trustee obtained an ein which she did. Now for tax reporting we have what ? two eins. I plan to use the ein she applied for although the interest reported to the trust by other payers show her ssn. Maybe I should show the social in parentheses after the ein.  

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19 hours ago, Christian said:

That information is most helpful. The daughter is the trustee so I will work with her. There is a glitch in that the lawyer setting up the trust advised that the trust could use the mother's social security number for the trust. This caused no problem with her final return. However, an insurance company refused to pay on a policy until the trustee obtained an ein which she did. Now for tax reporting we have what ? two eins. I plan to use the ein she applied for although the interest reported to the trust by other payers show her ssn. Maybe I should show the social in parentheses after the ein.  

It's perfectly reasonable and normal to use a person's SSN for their living trust while alive. When they die, the trust becomes irrevocable and an EIN is required. File the return with the EIN, you don't need to inform them of the SSN. Check with the attorney on the dated date. Typically it's considered a new trust and the dated date is now the date of death.

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I now with the assistance from youall have this matter in hand with one exception. The trust holds a residence on a lake which is not rented (the parent's owned tthe property). With disolution of the trust this year it will pass to her two children. Are there any costs connected to this property other than real estate taxes which are deductible on the Form 1041 such as a recent fee payed to the local association for maintanence and such? I suspect repairs would not be but it never hurts to ask relavent questions.

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Any expenses for the property that are incurred while the property is held by the trust are the trust's expenses. The only other expense I can think of would that you haven't mentioned is depreciation, insurance, utilities, mortgage interest (if any) and yes the repairs. 

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I was deterred by this from the Form 1041 instructions. Ownership costs. Ownership costs are costs that are chargeable to or incurred by an owner of property simply by reason of being the owner of the property. These costs are commonly or customarily incurred by a hypothetical individual owner of such property and are not deductible by an estate or non-grantor trust. Under section 67(b), they include, but are not limited to, condominium fees, insurance premiums, maintenance and lawn services, automobile registration and insurance costs, and partnership costs deemed to be passed through to and reportable by a partner. Other expenses incurred merely by reason of the ownership of property may be fully deductible under other provisions of the Code. Since this is a grantor trust it seems to me they are as noted in your reply fully deductible.

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These expenses can be considered by the trust for bookkeeping purposes, but not as income tax deductions.  When the trust was a grantor trust they weren't deductible, and now that it's not a grantor trust they still aren't deductible.  The property taxes can be deducted as well as legal and accounting fees.

Trusts almost always have to use a calendar year.  The only exception I know is if a qualified revocable trust (that becomes irrevocable upon death) makes a Section 645 election to be treated as part of the estate, in which case the estate reports the income and deductions.  (Sorry, carrying costs like insurance and HOA fees aren't usually deductible for estates either.)  If the property had been rented it would be another story.  Perhaps someone else knows how a trust can use a fiscal year; I can't think of anything else.

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