Deceased Taxpayer and Trust

[S T]

I have a deceased taxpayer - that return is okay,
Except!
Brokerage House that had all of deceased taxpayer's assets (stocks, IRA, Cash Account) stated it was not necessary to open a Trust Account (Lviving Trust) on decedent's death and make a transfer of the account, then disburse funds.

Here is a question - received a 1099R for the Balance in the decedents IRA - appears the beneficiary was the "Trust" and the Brokerage House issued 1099R to the decedent under her SSN# and a Code 4 (death benefit) as the Brokerage House never corrected account.

Doesn't this distribution have to be allocated to the Trust Return, and the appropriate taxes paid as such if in fact it was distributed post death ??

If I place on the Decedent's tax return there would be no taxes due - as there are qualifying medical/nursing expenses paid. But on a Trust return being distributed to the Trust and then ultimately the beneficiaries - I have no medical expenses - the Trust is to pay for all taxes prior to distribution and I have a tax due?

Thanks,

Sandy

[Gretel]

I am confused. What does the Brokerage house has to do with any trust? Is there a trust document?

I would agree with your assessment that an IRA payout after death needs to be reported by a beneficiary, not by the decedent. Maybe the beneficiary is a trust, maybe it's one or more individuals.

[S T]

Didn't mean to confuse, Yes a Trust Document, with successor Trustee,

The Brokerage house that the assets were with, did not separate from decedent SSN to a new Trust EIN# - all reported under the decedents SSN, Brokerage house stated they did not need a new Trust EiN#

All of the 2011 Reporting is being issued under Decedents SSN# and will be the same for 2012 until the account is closed.

Sandy

[Gary2]

What I'm inferring is that there was an existing trust that qualified as a grantor trust, which became a non-grantor trust upon death of the taxpayer. Is it correct to say that the brokerage account (other than the IRA) was already held in the name of the trust, but with the taxpayer's SSN? Or was it held in the taxpayer's name?

Either way, it sounds like the brokerage is correct - it's not necessary to create a new trust account. If it's the former, then it's already in a trust account; the only thing necessary is to get them to fix the TID on the account. This is a much simpler task for the brokerage, and one that they ought to be willing to do. (I'm not sure if it was appropriate to use the taxpayer's SSN on the account in the first place, though I understand why someone might want to do it.)

In the latter case, does the will specify that the trust inherits these assets? Or was the account titled "payable on death to the Living Trust of ...." or something similar? Those are the only ways I see it being appropriate to put the assets through a trust account. Without that, I don't see any grounds for transferring the account to the trust. And it doesn't make sense to set up the will and trust so that the assets only pass through the trust briefly. Perhaps the original intent was that the trust would keep the assets until the beneficiaries reached an appropriate age?

Regardless, assuming the taxpayer died in 2011, the simplest approach may be to have the final return for the taxpayer treat the 1099-INTs, 1099-DIVs, and 1099-Bs as nominee amounts.

As for the IRA, I don't believe it could have been held originally in the name of the taxpayer's living trust. IRAs are normally their own trusts, with the custodian (in this case, the brokerage) as trustee, held for the benefit of the individual who qualifies to contribute to the IRA, but with one or more successor beneficiaries. So the question then is whether or not the IRA had any named beneficiaries, and if so, who? It's conceivable that the IRA named the existing Living Trust as a beneficiary, in which case the brokerage did what it thought was the correct thing - transferring the assets to the trust, and using what they thought was the trust's TID number. The best thing to do would be to get them to correct the 1099-R. Again, this is about changing the TID, not creating a brand new account.

If the brokerage won't do that, then I think you'll have to do a 4852 to fix it. You can't use the nominee approach on a 1099-R.

[JG EA]

Gary,
Perfect for a situation I am facing. Thanks for your helpful answer.

[Burke]

All of the 2011 Reporting is being issued under Decedents SSN# and will be the same for 2012 until the account is closed.
Sandy

This brokerage is nuts, and I would get the assets out of it as fast as you can. They issued the 1099-R to the deceased? You have got to be kidding. And they say they don't "need" a trust EIN?
There should be an estate EIN and an estate bank account. You cannot keep using the decedent's bank account. How is the executor paying the bills? Have the trustee divide the brokerage assets into new accounts for the beneficiaries and heirs under their SSN's if he does not want to sell the assets. Otherwise, have the trustee liquidate the account. As for the IRA $$$$, put it into the estate bank account as well if no named individuals were the benes. Just pray they did not withhold any taxes. If decedent died in 2011, that year is the final tax return for him. You will not be able to file a return for the decedent in 2012 to get anything back. All income will have to be reported on the estate/trust income tax return and/or the benes'.

[S T]

Burke I am so glad that you posted, and I was hoping that you would post. I don't have the same expertise as you do in Trusts and Estates, but I have completed some over the years, so I would like to think I have a working knowledge of what needs to be done. This particular one seemed pretty simplistic in the beginning, but now has turned into a "challenge"

I have prepared the Decedent's Returns for years, as well as one of the Co-Executors returns - and I am aware of the assets and the accounts.

This one is giving me grief. It was a Living Trust, the grantor passed away, so it would seem I would need assets transferred to "now" Irrevocable Trust" upon death, then income and distributions made. Trust Form 1041 Returns completed from DOD for the period of time open until distributions are final, and Trust received any taxable income.

I had a conversation with the "Brokerage House" do I dare name ? major well known, and they said "NO" new EIN # for the Trust after death, they will just keep all in the decedent's name and ID# ---- and there is where it still is.

Span of time is July 2011 and hopefully we can conclude to liquidate the remainder by July 2012 - So I have 2 --1041 Reporting Tax Years. There is $ 20,000 left in a Cash account at this Brokerage House for ":claims" and "taxes" but under the decedent's SSN#.

I expressed my concerns to the successor executor co-Trustees, and they encountered issues with other benefits, and finally relented to obtain a EIN# for the Trust.

As I am receiving paperwork and working with the Executors/Trustees, they are totally clueless and have relied on the Brokerage House that held all of the assets, except for some death benefits, and pension funds from a California Retirement Account.

You ask about "division of assets" took a few months, and I have assets sold after date ,of death (but prior to 12/31/2011) to convert to cash to make distributions to 5 beneficiaries, Trust Agreement indicates that Trust pays all taxes so beneficiaries are "free" of tax - some assets converted to cash to pay out cash distributions, some assets just transferred to beneficiaries depending on their choice (stock)

Among these items that I see is the 1099R issued to decedent, with decedent's SSN# and a Code 4 (death benefit) - so I am asking the Brokerage house to provide me with records of "beneficiary of the IRA", when was the distribution made, and what account was it placed in??

I have another 1099R in the decedent's name and SSN# issued by the same Brokerage House, but that was for her RMD that matches to each prior year - it is minimal - and that one can be reported on decedent's final return --

I know that I can nominee the Interest and Dividends under the decedent's account to the Trust, I am just having an issue with this $ 30K IRA distribution that was distributed, so if what Gary says is true, I can try to off it through the 4852 form, if the Brokerage Firm does not want to correct. and I do not think they will.

Burke, thanks so much for your post, and if you can lend any additional guidance, it would be so much appreciated.

Sandy

[Burke]

Sorry, I was out of the office all last week so only saw it after I got back yesterday. I suspect the conversation you had was not with the "brokerage house" but with the individual broker who is looking at the handling and distribution of assets from his standpoint, not the tax reporting nightmare this is becoming, nor the legalities. I have dealt with all the major brokerages out there, and have never run across this yet with any of them. If I had, the entire account would have been liquidated at once and moved elsewhere. You say there is a Trust EIN (of course, how else would you file an income tax return?) so it is a simple matter for them to transfer all into a new account with that number. It may be a moot point now if you are ready to distribute and the only thing left is cash, but it would affect their tax reporting for all of 2012 transactions. Move up the chain of command if you have to.

As far as the 1099-R's go, I assume you have already filed the decedent's income tax return and reported the RMD on there. It should have gone into the trust if it was paid after her death, but ce la vie. If the remaining principal was paid out after her death but before 12/31/11, you probably will have to deal with a letter from the IRS down the road. If it was paid out after 12/31/11, then don't worry about it. Just report on the trust return. One thing the trustee can do is elect to treat the trust as an estate under IRC 645, using Form 8855, and then you can elect a fiscal year on the 1041 (assuming you have not already filed it for the calendar year). This means all income (assuming the IRA's bene was the trust) goes into the trust/estate and all expenses come out on one return if you can close by 6/30/12, assuming TP died in July, 2011. This should lessen the tax as you can take advantage of all expenses. It's unfortunate that the provision is in there for the trust to pay the taxes. That's going to cost more than passing the income thru to the bene's.

[Burke]

It occurred to me after mulling this over that the broker in this case is applying the concept of not having an EIN for an RLT while the TP is living -- which is true. However, it is an entirely different kettle of fish after death and he needs to be educated. You can find this requirement in the instructions for Form 1041 and show it to him. See page 4, third column, under TIN, where it says "All QRT's must obtain new EIN after the death of the of the decedent, whether or not a Section 645 election is made." This page also describes this election. Also note page 5, which discusses reporting where there is no executor. The trustee can elect to treat the trust as an estate, get a $600 exemption instead of $300, can elect a fiscal year, etc. etc. Also note that even if you filed a trust return 1041 for the short year (July - Dec), if a subsequent timely 645 election is made, you may amend that return to zero and file a new 1041 for the trust using a fiscal year. Due to the time frame, this needs to be addressed as soon as possible. However, you can file an extension and the 645 election will also be extended. If distributions are made to the beneficiaries during this fiscal year, the income is going to pass through to them and they will pay the taxes. The IRA will still be ordinary income, but it will be divided among them, and be much less than the trust would have to pay. In fact, if distributions have already been made, which you indicate may have happened, the IRA comes out first to the extent of the distribution amount. Note also the trustee may make the 663(b) election to treat any distributions made within 65 days after the end of the (fiscal or calendar) tax year as made before the end of that year by checking Question 6 box on Page 2 of 1041. That may help you treat the whole thing within one year of date of death if no income is left to come in and no expenses left to be paid by that time.

[S T]

It occurred to me after mulling this over that the broker in this case is applying the concept of not having an EIN for an RLT while the TP is living -- which is true. However, it is an entirely different kettle of fish after death and he needs to be educated. You can find this requirement in the instructions for Form 1041 and show it to him.

I was aware of this requirement, after the years that I have prepared some small Trust Returns. It was the Broker I spoke with, however, he stated that he had discussed with the legal dept, and they did not have to change account title or EIN# - Interesting though when Trustee and I applied for new EIN# for Trust online it was blocked, and subsequently we found that the Brokerage applied for - so we do have an EIN# - no copies of paperwork for SS-4. etc and the Brokerage is not using the EIN# on any reportings. for 2011. I had also given the information to the "Trustee" to adivse it was "his/her" duty as such to obtain a Separate EIN# for the
"Trust" after DOD. This conversation has been ongoing for more than 9 months.

I am having a difficult time in obtaining the Year End 2011 Consolidated Report which would include the info for 1099 INT, 10909 DIV and 1099B - all they keep supplying me with is "Summary Reports" - Since when does a Major Brokerage House or Broker does not know about the Year End Reports that are required and have already been submitted to IRS Computers.

Received more info today, via fax and email, the 1099R issued in decedent's name and SSN# was the remaining benefits in the IRA account, of which the "Family Trust" was the beneficiary. Finally managed to get this tidbit!

DOD is 6/5/11 - IRA distributed on or about 7/19/2011 - part stock and cash which should have no impact on IRA 1099R Distribution- still a distribution of IRA $$ but all reported under decedent's SSN and Code 4. Not sure how a Decedent can receive a Death Benefit

On the Investment Account - which I am waiting to find out the Beneficiary Designation, Showing a Realized Loss, but using the Decedents Cost Basis - however, Brokerage did supply me with the FMV DOD so I should be able to use that info to see if there is a Gain/Loss for the Trust or the Trust Estate. And then be able to separate to the Decedent's Return and the Trust Return - Of course the we now have the NEW 8949 Form, so not sure how that is going to impact us 2 years from now.

However, I should be able to submit the Form 4810 for Request for Prompt Assesment to limit the time, right??

Have a phone conference on Wednesday with the Broker Assistant and the Trustee - This should have been so simple, and seems to have developed into I don't know what.

Requested a copy of the Trust - to make sure Trust is to pay taxes, no matter which way I proceed there will be taxes due I am sure - and then I will have to try to minimize some penalties.

Thanks

Sandy

[Burke]

Wow, I just cannot believe this firm. They applied for an EIN and then said they didn't need to use it? Incredible. Somebody somewhere is highly misinformed.

And then you say you cannot get copies of the 1099's on the account? Should be a slam/dunk. But they would have been sent to the address of record as well, so whoever is collecting the mail for the decedent should have them.

A decedent cannot receive a death benefit payout, of course. The SSN should have been changed to the EIN of the trust, and I am assuming the broker distributed that account separately to the bene's. Did any of them report it on their tax returns? It is income to the trust.

If you have the FMV at DOD, and you have filed extensions for everything so far, it will not be that difficult to complete the 1041 to the beneficiaries' advantage. You definitely will have to file a 1041. Using a fiscal year will allow all distributions to be taxable to the bene's (if any) in 2012. I assume they would have already filed their 2011 personal returns. If you use a calendar year, any distributions prior to 12/31/11 that produced taxable income (IRA, for instance) should have gone on their 2011 returns.

Not sure about your concern re: Form 8949. Should not make any difference. Form 4852 is for W-2's. Never heard of using it for a 1099R. Besides, you have the 1099R under the wrong SSN/EIN. Since they did not change the SSN prior to payout, they probably cannot now correct it. Don't worry about it. That you can deal with.

You absolutely need a copy of the Trust document before doing any trust returns. AND all SSN's and addresses of beneficiaries. Provide them with W-9's to complete. If DOD was 6/5/11, then end of estate year (fiscal) is 5/31/12. Return is due 9/15/12. You can file an extension before that date if necessary. And assuming all can be closed out by 12/31/12, all taxable income passed through to benes will go on their 2012 returns, even if you have to do two of them.

The trust can pay estimated taxes and allocate them to the benes, which may satisfy any requirement for it to pay them. I will send you an email rather than take up more board space on this subject. I think we have thrashed it enough here.

[S T]

I am confused. Looking at Form 8855 - Election to Treat A QRT as Part of an Estate.

I do not have to file an Estate Return 706 or an Estate Form 1041, only the Trust Form 1041, however, want to use the Sect 645 so I can elect Fiscal Year on the Trust Return (per Burke's suggestion in prior post)

Do I have to apply for a separate EIN # under the Estate Name - I have a EIN # for the Trust. Or I simply use the Trust EIN#

Then on Form 8855, do I complete only Part I and Part II, or do I complete Part I, Part II and Part III - then do I check it as a Domestic estate or Domestic Trust.



Thanks

Sandy

[S T]

I was hoping Burke would answer on this - but Burke might be on vacation - I still have some time as I am on verified efile extension - but like to get this moving forward.

Anyone else have some "words of wisdom" - I just do not want to mess up this Sect 645 election and I have not completed one before

Thanks,

Sandy

[Burke]

I am here. Was out of town for last 2 weeks traveling in Maine. Will get form and get back to you later today. You do not need to get a 2nd EIN.

[S T]

Burke, I figured you were out of town or on vacation, as I had not seen you post over the last few weeks. Hope you enjoyed your Vacation!

Thank you so much for reviewing for me and providing guidance on form 8855, you can also PM me, however, I suspect that someone in the future might have some of the same questions and/or confusion on the 645 Election for a Trust.

I have not completed this election before, and I do not want to "screw it up" and hopefully with your guidance on this thread, I can bring this Trust to a close by the end of the year 2012!

Thanks,

Sandy