Trusts & Estates

[GTS1101]

I am new to preparing Trusts and Estates. I learned some from studying and passing the EA exam but after tax season I need to spend more time learning about this area of the tax law.

I have a client that setup an Irreovcable Trust and put her daughter as the Trustee. The assets in the trust are a home that the mom owns and is paying mortgage interest on some oil and mineral rights and some savings interest. For 2009 the trust earned about 290 of interest income.

My question is do I have to file a trust return for 2009 if only 290 of interest income. I am assuming no need to file. Also the trust does not indicate if it is simple or complex. How do I know that. The trust did not distribute anything in 2009 nor is it required to. Should I assume this is a complex trust? Can it be a grantor trust? And what happens with the mortgage interest? Does the mom continue to write off on her personal return or does it go on the trust since the property is owned by the trust now?

Another client's parent's passed away and the home remains in the trust name. It was also irrevocable before death. The house is worth only about 250,000. I know an estate return does not need to be filed. But for 2009 they rented out two of the three rooms. The parent's son lives in one of the rooms. The renters have full access to the whole house. Can the trust write off 75% of the home since two of the three rooms and the rest of the home is being rented out? And would this also be a complex trust. The trust is going to end up with a loss and having nothing to distribute. And the trust received a 1099-R for a death benefit distrubtion in the trust tax id number. Where does that go on form 1041 under other income? I could not find a place for it.

Thanks!
GTS1101

[Mo Sheets]

Some explanations....

I am by no means an expert when it comes to trusts, but I will share with you what I know.

Some trusts must distribute all of their income currently and are not empowered to make charitable contributions. Treasury Regulations refer to such trusts as SIMPLE TRUSTS.

Trusts that are not required to distribute all their income currently are referred to as COMPLEX TRUSTS. The distribution deduction for complex trusts and all estates is the sum of the income required to be distributed currently and any other amounts (such as discretionary payments) properly paid or credited.

I hope this helps!

Mo

[Burke]

Previous poster is correct regarding terminology of trusts. Whether it is simple or complex depends on how trust document is worded and how distributions are to be made. Don't do a trust return without the trust document in your files.

Trust #1. A trust's exemption is $100. So if income exceeds that amount, a return has to be filed. Expenses may reduce trust income to zero. If the trust owns the home, it deducts the mortgage interest. It cannot be an asset of the trust if the deed has not been transferred to the trust.

Trust #2. The IRA distribution to the trust goes on Line 8, other income. A trust cannot take a rental loss. It can hold rental property and you would complete a Sche E for income and expenses. Losses are suspended until sold. So it may have taxable income. A trust is entitled to make a distribution to the beneficiary IF the trust document allows, and then any taxable income may flow through to that beneficiary on the K-1. But it would have to have been done by March 5 (65 days following the end of the calendar year for the trust) to have been considered distributed for 2009 and shown on the tax return.