Type of Entity to Choose on 1041

[TheTaxMan]

A quick question to all of the Estate and Trust experts out there and thank you in advance for your replies to this question:

I have a client who had irrevocable / living trust in place during his life.

He passed away last year - no spouse.

The terms of the trust state that all of the assets in the trust are to be distributed to the trust's beneficiaries as soon as possible - except that the house (the personal residence of the deceased) is not to be sold or distributed to the beneficiaries but rather rented to the daughter and granddaughter (of the deceased) until the grandaughter turns 18 (she is currently 10). When the granddaughter turns 18 the house is to be be sold.

Quick question: When preparing the 1041 for this intial year do I check the Estate or (one of the) Trust boxes for the Type of Entity on the 1041?

Thank you so much in advance.

[abby]

irrevocable?

Hi Tax Man

Did you mean Revocable Living Trust? If it is truly Irrevocable, then you would check Trust for sure.

If it was Revocable, there is an election to treat the trust as part of the estate for up to two years - then you would check Estate and attach an election.

Most times this election is made for a trust that will be fully distributed in short order and it gives you flexibility in setting a fiscal year - usually based on one year from the date of death - whereas a trust needs a calendar year.

I won't go into more detail until I know that we're talking the same kind of trust.

Hope that helps.

[TheTaxMan]

Yes - It Was a Revocable Trust (My Bad)

I meant to type a revocable trust - not an irrevokable trust.

[abby]

election possible

If it would help you to have a fiscal year - say DOD was 8/12/07 then you could elect a fiscal year that ends 7/31/08 rather than 12/31/07 - say, in order to distribute all the other assets in one period, then you might make this election to treat the trust as part of the estate.

You would have to switch to the calendar year after two years to report the rental income on a Trust return.

I don't see anything, just looking in the TTB, that would prevent you from making the election just because you know the trust will last more than two years, just that two years is the maximum for the election.

If a 12/31/07 year end works for you, then you'd likely just mark the Trust box and go from there until the trust is dissolved in 8 or 9 years.