Estate Question

[quicksam]

I have a client who was left in the will to draw 50% of Oil rights in an Estate and her sister was left in the will to draw the other 50%.

She came in this year wanting to claim all 100% of the $5950 due to some deal her and her sister worked out for this year.

I'm I correct in thinking that they just cannot go against what the will said was left to them. Wouldn't they have to split the $5950 on the K1 anyway?

Thanks for your help.

[Jiggers]

Estate Question

I have a client who was left in the will to draw 50% of Oil rights in an Estate and her sister was left in the will to draw the other 50%.

She came in this year wanting to claim all 100% of the $5950 due to some deal her and her sister worked out for this year.

I'm I correct in thinking that they just cannot go against what the will said was left to them. Wouldn't they have to split the $5950 on the K1 anyway?

Thanks for your help.

Is the royalty going through an estate, that in turn distributes it by way of the K-1?

Who is the executor?

I would use whatever is on the K-1.

[quicksam]

The royalty is going to the estate and then the estate distributes it from there.

There are two equal beneficiaries of the estate. One beneficiary let the other have all of the money this year for some reason and know she wants the other to claim 100% of the distribution on one k1 and 0% on the other k1.

My thinking is that I divide the distribution on the k1 50/50 like always.

[Nashville]

Would Not Change the K-1

I don't believe the K-1 should change. If a deal was cut with the sisters, it needed to be with the understanding that the accountability for reporting distributions cannot be part of the deal.

Now if the one sister gave up something of substance for the other half, it's possible there could be a separate transaction with possible tax effects and half of the money being considered as proceeds. If the deal was for something intangible like driving her kid to the Grand Canyon, or babysitting Fluffo the cat, I believe the sister who gave up her half simply has the responsibility for reporting her half of the money.

The only way the K-1 should change would be if the terms of conditions of the will were changed by a court. The sisters can't just redirect it because they have their own "deal."

I'm going to add a comment by edit and go a step further. If I were the trustee, I wouldn't even change the distribution of the money itself. I would write two checks. The obligation of the trustee/executor is to the wishes of the deceased and should not be involved in what the whims of the sisters decide to do with the money.

[quicksam]

I talked with her again today. She is stating that they distributed some of the personal property of the estate to the sister not taking money distributions. In return the other sister took the cash as equal value for the personal property.

The personal property isn't taxable because it was inherited and has not increased in value since the date of transfer. However the oil rights is money the estate is earning after the death. I still do not see this being able to be done the way they are wanting to do it.

Anyone have any ideas with these new details.

[Burke]

The posters above are correct. You cannot shift taxable income from one taxpayer to another because they prefer it that way. It is illegal. This is sometimes attempted because the reporting person's tax rate is lower than the other's. I have seen it tried in divorce cases. There are many reasons people don't want certain income on their tax returns. Sometimes they think as long as somebody reports it, it is ok. Right? Wrong. If your clients wish to trade $$$ between them after these distributions are made, and reported on the K-1s, and their tax returns, they certainly have the right to do that and compensate the other for the taxes paid or whatever other obligation they feel one has to the other.