Revocable Trust

[Hoosier]

Couple of basic questions regarding revocable trusts... 1 - When taxpayer creates a revocable trust, is it necessary to obtain a Tax ID number for the trust? 2 - Is it necessary to file form 1041 annually for revocable trusts? Getting ready to dive into the Tax Book in an effort to research but thought I would throw out these questions to the group to get a jump.

[Burke]

A revocable living trust is considered a disregarded entity. No EIN and no trust return required. Everything still goes on individual's return.

[BOB W]

Probably doesn't need to be said but, a revocable trust needs to be funded in order to work. Funded means to change title/ownership to the trust's name. I have found instances when not all assets were placed into the trust and the outcome became a mess for the wife and kids.

[S T]

Reference

Hoosier,

Just in case you didn't find it, TTB page SB 10-21 is where Grantor Trust Filing Methods are discussed.

All that has been posted prior contains much of the same information, so I will not repost, presuming of course your client is either a Single Taxpayer or a Maried Couple which files jointly that created a Revocable Trust

Sandy

[Barb]

Revocable Trust receives Div after DOD

I am hoping someone will help me with this issue on money received after DOD.

I have a client who was the trustee of her mother's Revocable Living Trust. The mother passed in 2007 but the daughter didn't disolve the trust until April 2008. During that time Dividends and sale of stock proceeds were received and at the dissolution all was distributed to the brothers & sisters.

Now, she has given me a 1099 DIV, INT and B from the brokerage firm, still titled in the name of the revocable trust. Where are these reported. The mothers final return was done for 2007. Do I report these transactions on my client's return as she was the trustee?

[RitaB]

Form 1041 unless estate value over $2 million

I am hoping someone will help me with this issue on money received after DOD.

I have a client who was the trustee of her mother's Revocable Living Trust. The mother passed in 2007 but the daughter didn't disolve the trust until April 2008. During that time Dividends and sale of stock proceeds were received and at the dissolution all was distributed to the brothers & sisters.

Now, she has given me a 1099 DIV, INT and B from the brokerage firm, still titled in the name of the revocable trust. Where are these reported. The mothers final return was done for 2007. Do I report these transactions on my client's return as she was the trustee?

A Form 1041 would need to be filed for the estate if gross income after DOD greater than $600. (Unless estate over $2 million, then Form 706.) Tax year begins DOD and ends on last day of any month you choose that makes the year less than or equal to twelve months.) You'll need a Federal ID number, I believe. See Instructions to 1041 and Publication 559.

If large estate, double check the $2 million.

[Barb]

I thought a Recovable Living Trust didn't go into the Estate. Isn't that the whole reason of setting these up? Maybe I'm wrong because this is new to me. The Estate was not big enough to file taxes.

[RitaB]

You may be right

I thought a Recovable Living Trust didn't go into the Estate. Isn't that the whole reason of setting these up? Maybe I'm wrong because this is new to me. The Estate was not big enough to file taxes.

I thought the whole idea was to avoid probate, and distribute everything quickly. The title of 1041 is "Income Tax Return for Estates and Trusts." So, I still think that's what you'd use. However, I've not done one for a trust, so maybe someone else will chime in.

So, gross (not net) income was less than $600? Specifically, gross proceeds on 1099-B were less than $600?

[Barb]

Div & Sales from Living Trust

There was over $5000 in Div & Int and a $12000 Loss in sale of Stock.

These were all distributed to the Trustee in Apr 2008 and divided among the siblings. The daugher said No Estate Tax was filed, because the estate was not big enough.

[RitaB]

I thought you were doing the return

There was over $5000 in Div & Int and a $12000 Loss in sale of Stock.

These were all distributed to the Trustee in Apr 2008 and divided among the siblings. The daugher said No Estate Tax was filed, because the estate was not big enough.

I spoke to an attorney last week who kept telling the heirs of his deceased client, "you don't have to do anything, the estate handled everything." Well, apparently he thought that cause the estate was not worth over $2 million, but it had gross income greater than $600, including debt cancellation of $7,000 that occured after DOD and had SSN on it. (So, apparently, he didn't know what to do with the federal ID number.)

I have found that lawyers generally do not know everything there is to know about taxes. I certainly don't know how to do their job.

I would do some reading in TheTaxBook Small Business Edition, ch 10. Also, instructions to 1041, and Pub 559.

(I feel like I am already over my head on this question, as I am about to start working on only my 2nd Form 1041.)

Edit: I see here on p. TTB SB10-2 that there is an election to treat Revocable Trust as part of Estate...file form 8855 before the due date of the first tax year of the estate... So, check out directions for Form 8855 as well.

[Burke]

I am hoping someone will help me with this issue on money received after DOD.I have a client who was the trustee of her mother's Revocable Living Trust. The mother passed in 2007 but the daughter didn't disolve the trust until April 2008. During that time Dividends and sale of stock proceeds were received and at the dissolution all was distributed to the brothers & sisters. Now, she has given me a 1099 DIV, INT and B from the brokerage firm, still titled in the name of the revocable trust. Where are these reported. The mothers final return was done for 2007. Do I report these transactions on my client's return as she was the trustee?

They do not go on the trustee's tax return just because she was the trustee. In this case, she apparently? was one of the beneficiaries, and those are the returns the the income goes on. (It should have gone on a 1041 for the trust which ended 4/2008, but that return should have been filed 4 1/2 months after termination, with K-1's to all benes.) Since it wasn't, just divide it all equally (since I am assuming that is what the trust said to do) and give each sibling their individual share of the income and gain/loss for their 2008 tax return.

[Barb]

Each file their own part of Trust money

Thanks, That makes the most sense, since there will be a Cap. Loss, and I have no idea the tax situation of the other beneficiaries. They will just have to amend their taxes to include this.