B trusts and 1041's

[Unregistered]

I have a couple who had setup a revocable living trust. The wife died in 05 and the trust became an A and B trust with 50% of assets to each. The husband is still the trustee of the B trust and basically receives the income as needed. Attorney ordered a TIN and broker used it.

Daughter took stuff to another CPA who did not do a trust return for the B trust and just showed all of the income on the 1040. They asked me to review and make necessary corrections.I think this is wrong since the B trust is now irrevocable. Do you agree that a 1041 return should be filed for the B trust?

[OldJack]

Yes/no.. it would be expected that a form 1041 would be filed for Trust B under the trust ID number. However, the CPA may have elected under code §645 & Reg.§1.645-1 to report the income after death on the estate tax return 1041 which may not be required to file. Income before date of death should be reported on the 1040 and certain income with respect of decedent (IRD) can be reported on the beneficiaries ( that receiving the income) 1040 (husband's 1040?). Therefore, I would give the CPA a telephone call before going to the trouble of preparing other tax forms that would complicate things and require amending 1040s. If Trust B continues after the estate is settled and meets the requirement to file, it must file a form 1041 every year until terminated.

Normally Trust-A is money/property going to a spouse under the spouse exemption and is distributed immediately in the settlement of accounts therefore no trust income or trust tax return.

Normally Trust-B is money/property set aside in trust for children with the income every year going to the spouse. Therefore Trust-B files a tax return every year to account for taxable income and pass the income to beneficiaries (simple trust) or pay the tax from the trust (complex trust).