Trust - no state return

[Catherine]

New client, with a Generation Skipping Trust return.  I asked for the prior-year returns as well as the trust document.  Well, the trust has been around for decades (literally, like fifty years or more) and no one knows where the docs are.  OK; whatever, you do what you can do.  Prior year returns - they finally manage to dig up the 2018 federal.  No state return.  At all.  Prior accountant (who retired?  died?  I forget), they claim, told them that NO state return was necessary.  

Now what do I do?  It's my belief that the trust situs is MA (based on residency of the trustee for all those decades).  Although there's a chance situs is NY (where the client's father resided when it was set up - although it doesn't *seem* (from a vantage point of fifty-plus years later) that he had much to do with the setup except to recommend setting it up).  

Choices: 

1. Continue as before, federal return only.  I don't like this one; either MA or NY is owed a couple hundred bucks of tax a year.
2. File a MA state return this year.  Not NY; nothing except residence of a long-deceased gentleman to support assumption of NY situs.
3. Wait and see if the state then comes back and demands prior year returns for X years, plus tax, plus penalties.
4. Recommend filing three closed years.  Underlying assumption:  the federal tax returns, or original filing docs (brokerage statement) can be dredged up from somewhere or someone.
5. Crawl under my desk with a three-pound bag of Skittles and a bottle of Laphraoig Lore, and stay there until both are gone and this trust return has magically evaporated.  I don't like this one, either, as it's a waste of exquisite Laphroaig.  

Recommendations?  (Obviously none of the prior year work would occur until the docs are found, but the 2019 return I need to decide about.)

[Abby Normal]

MD doesn't require a state trust return unless there's taxable income. They don't want the bother of processing a return for no money, but I think I'd file MA returns going forward and let sleeping dogs lie.

[Sara EA]

State laws on this vary, so it's wise to check their websites.  I had a CT trust that became a SC trust when the trustee moved.  I have a CA trust that remains a CA trust because the grantor lives there even though the trustee resides elsewhere.  If you are talking significant bucks here (say, owe NY or MA $100 or $200 for 50 years) send the client to a tax attorney.  They can negotiate with the state, while keeping the taxpayer's identity anonymous.  The power they wield is that they know who the client is and the state doesn't, so if the state doesn't reach an amiable agreement on how much back tax they want, they will never find out and will get nothing.

[Roberts]

I'd inform them that a state return could be required if the residency state requires it but since they aren't giving you that information you can file it without a state return. Is there taxable income on the federal level? I would 100% not file a state return unless given instructions to do so.

 

As for old trusts, I do a 1041 which includes a farm income. Every year I get an email stating how much income they receive that is net all expenses supposedly. The original owner died, the beneficiary died, her beneficiary died and now it's a great grand daughter receiving the funds. Nobody knows where the farm is exactly located (they know the county I think), nobody has a copy of the lease and nobody is 100% sure how to get hold of the managing firm and the check they receive doesn't have contact information. The estate attorney who knew all that died well over a decade ago and nobody seems all that interested in figuring these things out. The attorney who has been dealing with it just says nobody is willing to pay him to investigate it. Last thing I heard was that an improvement was made to the land and if they break the lease they have to repay the leaser who paid for it and nobody knows when that period ends or how much it is.

[Burke]

Well, somebody knows something.  How do they know about breaking the lease and repaying the lessor?  They know who the lessor is.  Who is sending you an email and how do they know what the income/expenses are?   I wouldn't do it if details of expenses were not furnished. If any "improvement" was made to the land, it needs to be depreciated.  Somebody knows what it was because they paid for it.  If "they" (whoever they are)  stop paying the rent, believe me they will be contacted by the lessor who probably will produce a copy of the lease.  They know who the management company is. They get a check, so they know the name of the issuer and the bank account it is drawn on.   You would be surprised how much you can find out about these things on the internet.  A copy of the will should be filed in the court of the county in which the original owner died, no matter how long ago.  If it was a testamentary trust, that info about location of the farm is in it.   And ownership of the farm would be recorded at the county for real estate tax purposes.  Somebody is paying them.  Somebody is paying to do the tax return.  Who?    I don't buy the theory that "nobody knows anything."    This is the sort of stuff I would love to get into and it looks like everybody now has the time to do it.   It doesn't seem like you have enough information to sign off on this and I would certainly convey that to whoever the current trustee is. 

[Lion EA]

I'm working on one now that the wife of a trustee (the only trustee?) moved from a bank that was handling the investments and return -- investments to H/W broker and return to me. Trustee is an artist but wife is a writer and deals with their finances and paperwork; CT residents. Beneficiary is H's 90-something mother out in MI, but the prior fiduciary company is in AZ. Wife thinks trust was started by husband of Beneficiary, who would be her father-in-law, but he died long before wife married husband (second marriage). I have three years of returns and NO state return. Wife is a pretty good researcher, but has found no state returns and no trust document. Her best guess is this is a MI trust.

This all came to me through the preparer for their personal returns, so that preparer now has mom's personal return -- and again NO state. (Preparer does not prepare trusts or any returns other than personal.) Mom's personal return would obviously be MI (although, not obvious, because she has a second home in another state). But, the story there from the other preparer is her personal filing requirement is higher than her personal income in whatever states she's looking at.

In addition, the prior preparer of the trust checked Simple Return but used Exemption for a Complex Trust. Probably some other fun things; I just opened it up today. I'll get through the federal the best I can and then figure out next steps.

[Burke]

I make it a firm rule  that I do not even touch any new trust returns, UNLESS I have a copy of the trust document.  Without it, you have no idea how to deal with the items that need to go on the trust return, including who the beneficiaries are.   Her former bank who was handling the return and investments would surely have this.  Have her get it. 

[Lion EA]

I did ask for the trust document up front, months ago. She has tried and continues, but with skeleton staff and not returning phone calls (like many businesses) it will be a long time coming. It took many months for KPMG LLP in AZ to copy hubby on trust tax returns.

In the meantime, the preparer who brought me these clients has long ago filed personal returns for H&W plus mother. I filed the S-Corp returns. But, continue to email back and forth re the trust.

[Burke]

File an extension by 4/15.   Is income being distributed by the trust? 

[Lion EA]

Don't I have until 15 July to file extension?

Last three years were taxed as a complex trust with no income distributed. (Simple trust was checked on 1041.) Small amount of interest/dividends gains that mom does not need and did not take for 2019.

[Catherine]

8 hours ago, Burke said:

Her former bank who was handling the return and investments would surely have this. 

Ooh; that's a tactic I did not think of.  He had his broker at the investment firm send me (yet another) copy of the consolidated 1099.  Maybe they have the trust documents.  I'll email the lady and ask her.

[Terry D EA]

On 4/13/2020 at 7:09 PM, Lion EA said:

Don't I have until 15 July to file extension?

Last three years were taxed as a complex trust with no income distributed. (Simple trust was checked on 1041.) Small amount of interest/dividends gains that mom does not need and did not take for 2019.

Yes, this was just changed I believe Friday the 10th.