Estates, Trusts, & K-1's


P

ps56k

Quick question -
that has been lingering with with my wife's family...
Her mom died a few years ago...
Her mom's house was recently sold,
and the proceeds went into her Trust.

None of the five kids/bene's have received any distributions from the Trust.

There has been some rumbling about the Trust and issuing a K-1.

Thoughts, comments, or pointers ?
 
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R

R. C. White

Hi, ps56k.

You asked a "Quick question", but that does not mean that anyone can give
you a quick answer with so few details. :>(

For several years, I taught professional development courses on Federal
Income Taxation of Estates and Trusts. The simplest trusts are quite
simple. But they can become very complex very quickly! And tax rules
change often, so what I knew and taught 20+ years ago is surely out of date
by now, so be sure you check with your own CPA or attorney for the current
rules.

Who is the Trustee? That is who has the responsibility to file Form 1041,
the fiduciary return. That form will report the trust's income for its
taxable year, including a Schedule K-1 for each beneficiary who receives or
is entitled to income. Each beneficiary will report his or her share on the
individual's Form 1040 for the year.

What legal document created the Trust? Your wife's mother's Will? Or some
other Trust document? What did that document say about distributions from
the Trust? Any trust that is REQUIRED by its creating document to
distribute income at least annually is a SIMPLE trust, by definition - but
that doesn't mean that its tax return will be simple. If it is not required
to distribute all income currently, then it is a COMPLEX trust, by
definition, and different rules apply.

Trust and estate accounting make a vey strict distinction between "income",
which belongs to the income beneficiaries, and "principal", which belongs to
the remaindermen. The trust principal (or "corpus") does not lose its
character as such, even if it is converted to a different form - such as
cash. So if real estate was left to a grandchild, with income to a child,
and then the property is sold by the Trustee, the cash proceeds still belong
to the grandchild, who will receive the remainder of the principal at the
end of the trust, or other designated time. Income from those proceeds,
such as interest, would probably belong to the income beneficiary and might
be distributed currently, just like any rental income before the sale,
depending on what the trust document provides. (This is greatly simplified,
of course, with only a single simple example; the real world of estates and
trusts is full of more complex situations.)

So, we cannot give you the right answers without knowing the terms of the
trust. The Trustee is responsible for knowing and carrying out the terms of
the trust document - and for filing the annual tax return for the trust.

Please check with your own CPA and/or with the Trustee's attorney.

RC
--
R. C. White, CPA
San Marcos, TX
(Retired. No longer licensed to practice public accounting.)
(e-mail address removed)
Microsoft Windows MVP (2002-2010)
(Using Quicken 2012 Deluxe R 5 and Windows Live Mail in Win7 x64)


"ps56k" wrote in message
Quick question -
that has been lingering with with my wife's family...
Her mom died a few years ago...
Her mom's house was recently sold,
and the proceeds went into her Trust.

None of the five kids/bene's have received any distributions from the Trust.

There has been some rumbling about the Trust and issuing a K-1.

Thoughts, comments, or pointers ?
 
P

ps56k

RC -
tnx for the feedback...
I've also posted over in the moderated tax group.

This is a tough situation - because it's all family -

The father died in 2006,
and then all the cobwebs were found....
Trusts with nothing conveyed over.
Deeds written with JT Tenancy vs Tenant in Common
and various other issues discovered and attempted to correct.

Now, layer that with internal family control of Trust info & assets,
and one being Trustee along with the CPA for the family.
Not sure the status of each of the Estate filings.
and therefore any remaining Trust filings
for some sold real estate, rental real estate, & bank accounts.

SO - with walking on the family egg shells
and trying to retain piece between all family players
it is really difficult to find out any info....
You get a blank staredown or just "you have no need to know that".
 
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R

R. C. White

Hi, ps56k.

Those additional details just go to validate my original - and continuing -
reluctance to try to furnish meaningful advice without knowing such facts.
(Of course, the most significant reason for my reluctance is my
frequently-repeated warning that any expertise I might have had 20+ years
ago is dangerously out of date now.)

Reminder: As you apparently know, this is primarily the responsibility of
the TRUSTEE.

RC
--
R. C. White, CPA
San Marcos, TX
(Retired. No longer licensed to practice public accounting.)
(e-mail address removed)
Microsoft Windows MVP (2002-2010)
(Using Quicken 2012 Deluxe R 5 and Windows Live Mail in Win7 x64)


"ps56k" wrote in message
RC -
tnx for the feedback...
I've also posted over in the moderated tax group.

This is a tough situation - because it's all family -

The father died in 2006,
and then all the cobwebs were found....
Trusts with nothing conveyed over.
Deeds written with JT Tenancy vs Tenant in Common
and various other issues discovered and attempted to correct.

Now, layer that with internal family control of Trust info & assets,
and one being Trustee along with the CPA for the family.
Not sure the status of each of the Estate filings.
and therefore any remaining Trust filings
for some sold real estate, rental real estate, & bank accounts.

SO - with walking on the family egg shells
and trying to retain piece between all family players
it is really difficult to find out any info....
You get a blank staredown or just "you have no need to know that".
 

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