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Trust Tax Return Question

Ephesians3-14
Level 7

I’m working on a trust return in which the trust received $300,000 form IRAs/Annuities. There are 3 beneficiaries (all adult children of the deceased). The only distributions from the trust in 2020 were for the deceased’s funeral expenses. I know the funeral expenses are not deductible by the trust.

Would that scenario require the trust to pay tax in full on the IRAs/Annuities?

Can the IRA be "deemed to have been distributed" to the beneficiaries so that I can push the income down to the beneficiaries (on their K-1) and have them pay a lower overall tax?

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10 Replies 10
sjrcpa
Level 15

Yes trust pays tax since income was not distributed in 2020. They also missed the window to treat a distribution in the first 65 days of 2021 as a 2020 distribution.


ex-AllStar
Ephesians3-14
Level 7

Can capital gains be considered part of DNI if they have always been distributed to the beneficiaries from the inception of the trust? So, then they could also be passed along to the beneficiaries?

Separate question...the trust was created in December 2011. The grantor died on July 17, 2020. What date do I put on page of the first trust return (2020) as the date the trust was created? 

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Just-Lisa-Now-
Level 15
Level 15

Yikes, 300k at trust rates....that's going to sting.


♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
HillBilly
Level 3

A long shot, yet would trrust agreement have any language in it which would make the IRA/Annuity distributions DNI.?

Just attempting to be creative & think out of the box

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Ephesians3-14
Level 7

No, there was nothing in the trust agreement that stated that.

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BobKamman
Level 14

I'm working on a similar case and researching whether a Section 645 election can be made.  If you can file with a fiscal year, distribute the money now and let the beneficiaries pay tax on what is reported on their 2021 Schedules K-1.

https://www.plantemoran.com/explore-our-thinking/insight/2017/11/645-election

 

Ephesians3-14
Level 7

Is that a possibility for my situation? This is the first year of the trust for my client (decedent passed away in July 2020). Am wondering if I make a fiscal year election (with a June 30, 2021 year end) and since we're still within the fiscal year, a distribution could be made to the beneficiaries, thereby pushing the IRA income to their personal tax returns and avoiding a huge trust tax liability.

Anyone have any thoughts about this as a possibility?

HillBilly
Level 3

The link to the article attached in the other responce is directly on point.  I am aware of cases which are similar where the Section 645 election was made partially for these same purposes.  The entire estate has to be thought of, not just this trust.

If it were me I would probably contact the trustee(s) &/or the attorney who prepared the trust.as well as other trusted advisors for their input and guidance.

 

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Ephesians3-14
Level 7

I think the answer to your question is that because I'm working on a trust return, I cannot make a 645 election. Trusts are required to have a calendar year I believe.

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BobKamman
Level 14

You obviously didn't read the link I included.