1041 Trust

[S T]

I have a Trust on fiscal year that we are closing out (final year) and the Trust needs to make an estimated tax payment, but would like for it to be credited to the Beneficiaries accounts Trust is pasing through income and expenses.

I usually do not prepare fiscal years to begin with so the dates always give me grief, and I have never prepared an 1041 Estimated tax payment to be credited to the Beneficiaries.

Sad to say -- but true --So if one of can point me in the right direction, it would be appreciated.

Fiscal Year close will either be 1/31/2013 or 2/28/2013 - I am hoping for 1/31/2013 - Estimated payment sent in with 1041- ES - like this next week or so - we know amount ---- then I also file 1041T within 65 days of the close of the estate - so I can file both the 1041-ES and 1041-T at the same time and meet the regulations?

Beneficiaries as listed on the 1041-T will be given credit for the amount indicated, which will reflect on their 1041 K-1 form and they can claim on their personal 1040 tax return?

Example: 1041 - ES payment $10,000 - 1041-T would show the 5 Beneficiaries each allocated $ 2,000 of the ES Payment

Thanks for your help

Sandy

[appelman]

I don't quite understand.

Why is an estimated payment needed at all, if it is going to be left over after liquidation of the trust?

[Burke]

Fiscal year ends in 2013. Final distribution will be in 2013, if any. Bene's will pay tax (if any is due) according to their individual tax situations on their personal returns, which are not due until 4/15/14. Did they request taxes be withheld? How do you know the amount?

[S T]

Am I so confused or not understanding. I welcome any corrections on this Trust ---

Trust has an obligation to either pay the taxes or pass through to beneficiaries - judgment was to pass through to beneficiaries for final distribution - several beneficiaries have a lesser tax bracket than the trust would have if the trust paid - the first K-1 issued to beneficiaries on the 6/1/11 – 5/31/2012 shows passthrough of income - a 2012 Reporting for beneificiaries -- so trust is trying to cover it by ES taxes allocated to beneficiaries now on closing (you know beneficiaries receives windfalls, spend now - worry about consequences later).

As part of the distribution - as several beneficiaries probably have a tax issue, the question arose whether or not to meet the trust agreement of executor paying the tax - whether or not we could meet that obligation by allocating the amount directly to the beneficiary account showing on K-1. - thereby the question of 1041ES and 1041T - the amounts would be allocated equally regardless of the beneficiary tax status. (passing income distribution through to beneficiaries via K-1 and crediting a ES tax payment for them) and it could be allocated as 2012 payments?

If the Trust pays the taxes on the return - that amount is at a higher rate of tax and the beneficiaries would receive less in a final cash distribution on closing trust accounts ( there would be no –K-1) all on form 1041 tax due from Trust.

Software is showing 2012 Trust return for 12/31/2012 or 1/31/2013 or 2/28/2013 fiscal year- closing (depending on which closing date used) If I use 12/31/2012 date - which I wondering if I can – as no income/expense activity for trust - just the final cash disbursements - then does that show the K-1 forms to beneficiaries as a 2012 item for the beneificiary to report on f =their form 1040?

I am hoping that K-1 forms for both fiscal years end up on year 2012 - is that possible???

Is there something I am missing? I need to close --pass on to beneficiaries and close? I seem to be having an issue in my brain with the "fiscal year dates" and filings as to how the beneficiaries report on their personal return form 1040

Thanks for your thoughts and suggestions

Sandy

[Burke]

Software is showing 2012 Trust return for 12/31/2012 or 1/31/2013 or 2/28/2013 fiscal year- closing (depending on which closing date used) If I use 12/31/2012 date - which I wondering if I can – as no income/expense activity for trust - just the final cash disbursements - then does that show the K-1 forms to beneficiaries as a 2012 item for the beneificiary to report on f =their form 1040?

I am hoping that K-1 forms for both fiscal years end up on year 2012 - is that possible???Sandy

Final tax year of a estate/trust usually ends with final distribution date and the bank accounts are closed. You say this is a trust --- which usually is a calendar year. Is this really an estate? Or a very old trust that elected a fiscal year? IRS allows closing of the estate/trust year earlier for accounting purposes, IF, all income has been received and expenses have been paid in that earlier year (including executor/fiduciary fees and probate accounting fees, your fees for tax prep, etc) and the only thing left is to distribute the assets, which is done within 65 days after the end of such year. Since these expenses are usually paid at the end, sometimes that is hard to do.

So it appears, if that is the case, you could use 12/31/12 for the final year and the pass-through income would be in the bene's 2012 tax year, as long as distributions are made by 3/5/13. But why would they want that, when they could postpone it another year? If there were income which passed thru on the previous 1041 to the bene's, they would have to claim both in 2012 which might affect their tax status adversely. But I guess then any estimated tax you allocate to them on the 1041T would have to be in only one year. Is that what you were thinking? You can still file the 2013 return now with the K-1. The two K-1's would just be reported on their end in different calendar tax years if you use a fiscal year-end in 2013. Generally, you DO want the income to pass thru to the bene's, and not have the estate pay the tax. I am guessing the estimated tax issue is what is giving you grief.

[Roland Slugg]

Most trusts are not permitted to have a fiscal year but must use a calendar year. Are you sure about that fiscal year thing? Could you instead be referring to the trust's final "year" which could be a short year? A fiscal year and a short year are NOT the same thing.

[Burke]

I have a Trust on fiscal year that we are closing out (final year) and the Trust needs to make an estimated tax payment, but would like for it to be credited to the Beneficiaries accounts Trust is pasing through income and expenses. Thanks for your help. Sandy

Just to make sure I understand what is going on here, explain to me why the trust "needs to make an estimated tax payment." Normally, this is not done unless it owes income tax itself (estimate not required unless over $1K), and it would not if income distributions are made which pass through sufficient income to the bene's. Re-reading your OP, it appears as if the trustee just wants to withhold tax from their distribution and report it itself under their SSN to the IRS. If you feel more comfortable with a PM, feel free to send. Tks.

[Burke]

Most trusts are not permitted to have a fiscal year but must use a calendar year. Are you sure about that fiscal year thing? Could you instead be referring to the trust's final "year" which could be a short year? A fiscal year and a short year are NOT the same thing.

And I am wondering the same. If this were an RLT, and the grantor died, an election could be made under 645 to treat as the estate. Then it could have a fiscal year. According to info above, trust already filed an income tax return with fiscal year 6/1/11 - 5/31/12.

[S T]

Thanks for the replies and questions - it is helping me "digest" this "mess" I inherited from the Trustee

Yes the trust elected the "645 treatment" for fiscal year - Trust is distributed - except for this holdback that the Trustee wanted to apply as withholding to each of the beneficiaries (some beneficiaries have tax issues) I am thinking not such a good idea - but needed to see the options.

I am just thinking let the beneficiaries deal with it on their 2012 tax return. We are not talking about a lot of $$ split among 5 beneficiaries approx $ 30K divided by 5, so I would not think that tax burden on the beneficiaries personal return would be "huge" - for a couple of the beneficiaries - probably -0- at the higher end - maybe between the 15- 28% tax bracket for a couple of them.

No income for the period 6/1/2012 to 12/31/2012 or moving into 2013 -

Holdback is in a non-interest bearing account and of course beneificiaries want their $$ (Trustee was concerned about any outstaninding medical claims and tax issues)- All expenses have been paid. All income/expenses were reported on the first initial return.

Burke - is it feasible then to use 12/31/2012 close date - not do the ES 1041T passthrough and close- final return - make the distributions as you indicated by March 2013 and we are done! ??

Beneficiaries can just deal with their own tax issues on their own returns ---

Thanks so much for your replies and assistance,

Sandy

[Burke]

Burke - is it feasible then to use 12/31/2012 close date - not do the ES 1041T passthrough and close- final return - make the distributions as you indicated by March 2013 and we are done! ??Beneficiaries can just deal with their own tax issues on their own returns ---Thanks so much for your replies and assistance,Sandy

Sounds like a plan to me. It appears the second year's 1041 is only going to pass-through deductions allowable on termination, which the benes can then use to offset any pass-thru income from the first year's return if both ending dates are in the calendar year 2012, so that is what I would do. And let the bene's handle their own tax situations. Trustee is giving them the funds to do so, so let them be responsible. 2012 individual returns are not due until 4/15/13, and if any of them owe more than $1K, they can probably qualify for penalty exception #1 anyway.

I might advise the trustee, when obtaining the receipt for final distribution from them, that it include some wording to the effect that each is agreeing to be responsible for any income tax resulting from the distribution of said funds, if he seems to be concerned with that. I don't normally do that but its not a bad idea, especially if they might be under the impression the trust is taking care of the taxes.

[S T]

Burke - Thank you so much - You always provide such good information on Estates and Trusts and for several of my posts on Estates and Trusts have been so patient and understanding what I am trying to convey

I so appreciate you!

Sandy