Irrevocable Grantor Trust

[terryats]

Need advice on how to file irrevocable grantor trust. Trust was funded, and set up in 2017, never got an ein, never filed 1041, reported all income on grantors SS number for 2017 and 2018 (all 1099s came in grantors SS number) grantor dies in July 2019. Trustee got ein after death of grantor. Trustee had broker put new ein on all 1099s for 2019. Do I file two 1041’s or can I file one. I spoke with attorney that did the trust, and it is definitely an irrevocable grantor trust, and I am aware I only fill out the heading of the 1041 for all income to the grantor before death. Thanks for your help. I don’t do a lot of trust, and have never done this type so if possible need lot of details

[TAXNJ]

Start with Grantor Trust 21-20 in the TaxBook.

Also, since you state, “I don’t do a lot of trust, and have never done this type.”, you might consider getting local expertise in the area of Trusts since Trusts is a unique speciality area.

[ATSMAN]

TAXNJ gave you good advice. If the attorney drafted the trust documents and was funded in 2017, why did he not apply for a EIN? What were the assets under this trust? 2107 is still open for amendments so once you figure out the screwups you may want to advise them to amend prior returns.

[Burke]

It may be an Irrevocable Grantor Trust now, but it might possibly have been a Revocable Living Trust when it was set up. You say it was "funded." With what? By not changing the investments to the trust EIN , it was not funded with these items, so what else would have been in it? Apparently the custodians who issued the 1099's were never advised of this change, especially if the grantor never applied for an EIN, so if it were an RLT in the beginning everything was reported correctly. Only income after date of death goes on 1041. So only one 1041 is completed for the short year from July 2019 (DOD) to 12/31/19. All prior income goes on the deceased's final income tax return. The custodian of the investments should have issued two sets of 1099's for 2019. If they did not, then you will have to apportion the income before and after death using the monthly statements. You do NOT do two 1041's for 2019 unless the trust had other assets which generated income. GET A COPY of the trust document and review it. It will tell you what kind of trust it was when it was set up. Frankly, regardless of how it was designated in the trust document, if it was never funded -- then it was not in effect for tax purposes until he died. If it was NOT funded until after death, the above advice on how to file stands.

[terryats]

Thanks Burke for the reply, it was set up as I originally stated. It was funded with a brokerage account and two homes (personal use only) I have read the trust and from my research (also speaking to attorney) it is definitely an irrevocable grantor trust. The trustee (grantors son) has been my client for years, and I have done his fathers (grantor) return for the last three years, but no one ever told me about a trust until two weeks ago. His fathers 1099's came with his SS number. The son told me he only got the EIN after dad died, and instructed the brokerage to send 2019 1099's with the trust EIN. I was thinking I could do one 1041 and apportion the income to trust and final 1040 as you suggested. On 1041 just do heading and show trust portion of income. The son told me he was meeting with brokerage this week to distribute the account to beneficiaries. Income for year has been about $60000.00, and I expect 2019 to be close. do I just show the trust portion of income distributed on statement to beneficiaries with their name SS etc. as I believe no K1's are issued on this type of trust.

[Burke]

Thanks Burke for the reply, it was set up as I originally stated. The son told me he was meeting with brokerage this week to distribute the account to beneficiaries. Income for year has been about $60000.00, and I expect 2019 to be close. do I just show the trust portion of income distributed on statement to beneficiaries with their name SS etc. as I believe no K1's are issued on this type of trust.

It is incorrect that no K-1's are issued on IRGT's. If monies are distributed to beneficiaries in 2019, then the portion that represents their proportional share of income; i.e, dividends, interest, capital gains/losses or other taxable funds is passed through to them on a K-1, and they report it on their tax return. They do not pay tax on any distribution of principal or corpus. The only other alternative is for the trust to pay the tax which can be quite costly as the thresholds and tax rates are much higher than individual rates, and this just costs them money from their inheritance.

[terryats]

Burke this is from IRS 1041 instructions. "How to report. If the entire trust is a grantor trust, fill in only the entity information of Form 1041. Don't show any dollar amounts on the form itself; show dollar amounts only on an attachment to the form. Don't use Schedule K-1 (Form 1041) as the attachment"

[New York Enrolled Agent]

You are incorrect that no K-1's are issued on IRGT's. If monies are distributed to beneficiaries in 2019, then the portion that represents their proportional share of income; i.e, dividends, interest, capital gains/losses or other taxable funds is passed through to them on a K-1, and they report it on their tax return.

I would like to clarify something - perhaps I'm wrong in my interpretation of these posts but there appears to be more than one issue in discussion here.

Assuming this was a grantor trust (grantor trusts can be irrevocable or revocable), then K-1s would not be issued.

The income earned in the grantor trust is indeed reported on the grantor's 1040 return andifa form 1041 was previously filed, a grantor statement (not a K-1) is attached to the return. The grantor statement provides the various sources of income to be used on the grantor's individual 1040.

When the grantor of the IRGT died, the trust maintained its irrevocable nature but it was no longer a grantor trust. Thus a 1041 would be filed from the day of death to the end of the tax year. This trust would issue K-1s as appropriate to the beneficiaries. The grantor is now out of the picture. Burke - you agree?

[Burke]

I do agree. I have never filed a 1041 on a grantor trust if all income is reported under the SSN of the grantor by the payor. I see no reason why the IRS would want one, even if an EIN were applied for in the beginning. When these type trusts were first offered, there was a lot of confusion about how to report income. Perhaps that was the procedure then, but once custodians were advised to report income to the IRS from their end under grantor's SSN, everything matched to that individual's 1040 return in the IRS computer system. IF the custodian reported income under the trust's EIN, then that would be the only reason to file a "no income" 1041 with attached statements -- to show where the income actually was reported for the tax year in question.

[terryats]

Thanks everyone for your post, greatly appreciate your input. I will be filing grantors final 1040 and the trust 1041 with k1s being issued (after death it is now a irrevocable complex trust) Will apportion income between deceased grantor and trust. Have advised trustee to distribute all income (he has that option according to trust), so trust will have no taxes. again thanks to all

[ATSMAN]

Trust returns are complicated especially when the taxpayer does not understand how they work or the tax consequences. I have made it a practice to only work with taxpayers who can provide me copies of the trust document, access to their attorney or custodian/trustee etc. I prepare a copy for review by their attorney/trustee and a sign off before e-filing. These types of engagements generally require billing by the hour.

[terryats]

Thanks Atsman for the tip, I surly did a ton of research on this one (have only done a few easy trust in past) Have charged around $400. Was wondering what an average charge for this one would be.

[ATSMAN]

Thanks Atsman for the tip, I surly did a ton of research on this one (have only done a few easy trust in past) Have charged around $400. Was wondering what an average charge for this one would be.

How many hours did you spend doing research for this taxpayer? Base your charges on that. I would say $400 is probably on the low side given the complexity that you already described. I know accountants in my neck of the woods start off at $500 even for the simple 1041 filing.

[Burke]

I would say between $500 to $1,000, depending on time involved. You have to be circumspect in charging for "research" which just involves learning how to file a simple trust return. Be sure that the trustee holds back sufficient funds (if he is distributing in 2019) to pay expenses; i.e, tax return preparation, accounting and filing fees to local authorities if required, deed preparation (you said two homes were involved), legal fees (you said there is an attorney.) Also, keep in mind that the trustee can elect Sect 663(b) which allows distributions up to 65 days following the end of the tax year and still consider them paid in the preceding year for tax purposes.