The father's employer paid the annuity proceeds to the trust as a rollover (1099R Code 6). The Trust document does not address the annuity. It states the balance of all income and principal, after expenses, debts, special gifts are paid, should be distributed to his wife, if living.
Is the wife living? If not, what does it say about when wife is not living? You haven't laid out how the adult child is entitled to anything.
"The father's employer paid the annuity proceeds to the trust as a rollover (1099R Code 6)" So it was cashed and put into the trust. Again, how is the adult child an annuitant if there is no longer an annuity?
The proceeds were rolled over directly into another annuity. I agree, it does not appear that the son is entitled to anything, although the intent of the father was for him to inherit it. The mother is still living and she is the successor trustee.
Thank you so much.
"Annuitant" is not owner or beneficiary. Sometimes a younger person is named because older ones don't qualify. Theoretically, it has been explained to me, someone can be pulled in off the street to serve as annuitant.
How did the employer get involved? Is this really a 401(k) ? Was the deceased an owner of the company and this was some plan like split-dollar insurance that I avoid learning about?
Thank you so much for your response. My apology. The 1099R (Code 6) was from the Ohio Insurance Company. The funds were paid to the Trust. In my 36 years of practicing, I have never encountered a situation like this one. I have read the Trust document, but I have not had access to the Annuity Contract. The financial planner sent me an e-mail stating that the annuity contract was owned by the Trust of the purchaser of the contract,(the deceased) not the individual, and the contract was based on the life expectancy of the adult son, the annuitant. The Trust is also the beneficiary of the contract. The financial planner stated that this is the first annuity contract he has encountered in his 20 yrs of practice set up this way.
It seems to me the first tax issue is the amount of taxable income the trust has upon cashing in the annuity. That should be obtainable from Ohio Insurance Company. If this is for 2020, there should be a 1099-R for this.
Distributions from the trust and the attendant tax consequences flow in accordance with the trust agreement, which you have said directs all income to the wife.
As the saying goes, 90% of the people with living trusts don't need one while 10% of the people needing a living trust, actually have one. Well, at least that's what I say when people ask about them. Of course, I say the same thing about annuities.
Are you ready to explain to the widow/trustee, how much higher the tax rates are on a 1041 than if she can report this on the final joint return? Maybe you can get by with letting it pass through on a K-1 as income "required to be distributed," even though it wasn't.
Then is Trustee violating the terms of the trust which you said were:
"It states the balance of all income and principal, after expenses, debts, special gifts are paid, should be distributed to his wife,"
Does it say quarterly or annually? Is the trust still paying expenses, etc?