645 Election on Form 8855

[BPT]

Does anyone have experience with a 645 election made on from 8855? I have a client (husband and wife) where the husband passed away in July 2020 and his spouse is in a nursing home. Their 3 adult sons are the executors and have power of attorney for their mother in the nursing home. Their dad set up a grantor trust in 2019 which held his primary home and a vacation home. The trust never had any income and the primary home was sold in Feb 2021 but the sons intend to keep the vacation home. The questions is does it make sense to elect to treat the trust as part of the estate and file one return. The election is due 4/15/21 and cannot be revoked. The other issue the sons plan on keeping the vacation home which I believe will need a new trust EIN or one of them will have to buy out the other two sons.

[Burke]

Who are the beneficiaries of the RLT trust? You state the wife is still living.

[BPT]

Beneficiaries are the 3 sons. Wife is still living but in a nursing home with dementia. Sons are handling all the affairs for late father and mom in nursing home.

[Burke]

You state the husband set up a "grantor trust" in 2019 but you don't state whether this was a Revocable Living Trust or not. If it was an RLT, the executors and trustees can make the 645 election to treat the estate and trust as one entity. Whether it is advantageous to do so or not, is another matter. If they elect 645, they can file one tax return. It is good for 2 years. They get one exemption of $600, whereas if they do separate returns, they get $600 for the estate and $100 for the trust. An estate can file using a fiscal year effectively extending the tax year to June 30, 2021 and any taxable income is postponed until 2021. This is the biggest benefit of the election to combine the two. Is the "vacation home" going to be rental property so that income is involved? What other assets are in the Trust? Are there other assets outside of the Trust that are part of his estate? Do they wish to keep the vacation home inside the Trust because of Medicaid perhaps? Too many variables to advise. I have done this and it was advantageous to my clients to treat as one entity. All was disbursed by the date the estate ended. You will definitely need an EIN for the estate. You need to to have a copy of the Trust document and read its terms as well. What was the purpose of setting it up to begin with?