1041 But what State does one File

[DMICPA]

Decedent lived in Michigan. Died, Trustee (son) lives in California. All Trust accounts are in CA.

Trust income is only interest and dividends. Two other beneficiaries live in Michigan.

Client asked me to do the 1041. I live in Iowa.

I can see the 1041 but I would imagine that the State equivalent would be in Michigan?

Would the CA resident have to have a K-1 from Michigan?

Please enlighten me.

[ChEAr$]

Decedent lived in Michigan. Died, Trustee (son) lives in California. All Trust accounts are in CA.

Trust income is only interest and dividends. Two other beneficiaries live in Michigan.

Client asked me to do the 1041. I live in Iowa.

I can see the 1041 but I would imagine that the State equivalent would be in Michigan?

Would the CA resident have to have a K-1 from Michigan?

Please enlighten me.

Just makes sense that if the trust was formed in Michigan, by a Michigan lawyer, on behalf of the deceased, a Michigan resident, California has no call on earnings. Just like interest and dividends are always taxed only to the state of residence of a live person.

[Burke]

If the decedent lived in Michigan and the will was probated there, then it is a Michigan trust and you file a Michigan trust return for federal and state. It does not matter where the investment accounts you speak of are located or where the trustee lives. The beneficiaries will use the state K-1 to put income and subtractions/additions (fiduciary adjustments) on their respective state returns. They will apply the laws of their resident state as to what may or may not be taxable. Any beneficiary not living in Michigan is designated a non-resident on the K-1. This is assuming the income has been distributed and passed through to the beneficiaries. If it has not, then the trust pays taxes in Michigan, if any.

[DMICPA]

California needs money

I think that CA would also have the resident include the money as income on the CA return but would allow an "other state" tax credit" on those earnings as taxed by Michigan.

[Burke]

You haven't clarified if the beneficiaries received any of these earnings. Have they been retained in the trust? If so, CA is not entitled to anything. Have distributions been made to the bene's from the trust? If that is the case, then once you do the trust return, the appropriate amount will be on their K-1's to report to the respective resident state. This is generally total Div/Int income, less expenses of the trust, apportioned to the bene's in their legal share as specified in the trust document (which you need, by the way to do the return.) Capital gains are usually retained by the trust and the trust pays the taxes on them.

[DMICPA]

Correct

Thank you. You are correct.

The Trust did not distribute anything and it probably should have. Another Accountant did the Trust 1041 and just zeroed out everything, did not file a state return and did not pass through anything and no K-1s were issued. One of the beneficiaries is my client and sent me the returns that were prepared. I called the Accountant to verify some things and He did not justify His position and told me that since I have these questions on how the return was done, I can do the 2011 returns as He is resigning and this is no longer His problem.

He also marked the 2010 1041 as Final and it is far from being closed. I guess I can file an amended 1041 and just say the Final box should not be checked. For 2011, I will have to read the documents and obtain the beneficiary info etc.

An extension of time is starting to look good.

Just what I needed right now.