Trusts - file K-1 or Sched E


P

ps56k

My wife's parents died a few years ago,
and they have several owned & rental props.
Things have gradually migrated from the estates into their Trusts.

Recently - we were informed that we should expect
to file a personal Sched E - with income/expense info.

My basic question is this -
Shouldn't a Trust issue a K-1 vs having a Sched E passthru ?

The properties are now shared between 5 surviving siblings + an uncle.

Here is some of the latest chatter....
---------------------------------------------------

The Land Trust for the warehouse rental property does not require a trust
tax return.
We will record the income and expense on our personal 1040's Schedule E.
(2/3 for siblings and 1/3 for uncle)
This information will come from Uncle Smith.

The Auken property (house) is in Dad's trust now.
The income and expense information will be provided by Uncle Smith.
This information will go on Dad's trust return.
We may need to split the year between Dad's estate and trust
because the property was in Dad's estate for part of 2009.

The Tower house, two condos, Florida condo, and the Fullerton warehouse are
now in Mom's Trust.
Income and expense information will be provided by me.
This information will go on Mom's trust return.
Again, there may be a split year on some of the properties
because the property was in Mom's estate for part of 2009.

I am pretty sure the 2 estates or 2 trusts will bear the tax burden
on all property except for the Fullerton warehouse.

The information for the warehouse must be recorded on our 1040's whether
income or loss,
as it comes from the Land Trust.... which is a different kind of trust.
The tax burden, if any, is borne by the beneficiaries of this property.


For 2009, there will be several tax returns required:
 
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T

Tom Healy CPA

My wife's parents died a few years ago,
and they have several owned & rental props.
Things have gradually migrated from the estates into their Trusts.

Recently - we were informed that we should expect
to file a personal Sched E - with income/expense info.

My basic question is this -
Shouldn't a Trust issue a K-1 vs having a Sched E passthru ?

The properties are now shared between 5 surviving siblings + an uncle.

Here is some of the latest chatter....
---------------------------------------------------

The Land Trust for the warehouse rental property does not require a trust
tax return.
We will record the income and expense on our personal 1040's Schedule E.
(2/3 for siblings and 1/3 for uncle)
This information will come from Uncle Smith.

The Auken property (house) is in Dad's trust now.
The income and expense information will be provided by Uncle Smith.
This information will go on Dad's trust return.
We may need to split the year between Dad's estate and trust
because the property was in Dad's estate for part of 2009.

The Tower house, two condos, Florida condo, and the Fullerton warehouse are
now in Mom's Trust.
Income and expense information will be provided by me.
This information will go on Mom's trust return.
Again, there may be a split year on some of the properties
because the property was in Mom's estate for part of 2009.

I am pretty sure the 2 estates or 2 trusts will bear the tax burden
on all property except for the Fullerton warehouse.

The information for the warehouse must be recorded on our 1040's whether
income or loss,
as it comes from the Land Trust.... which is a different kind of trust.
The tax burden, if any, is borne by the beneficiaries of this property.

For 2009, there will be several tax returns required:
That's a lot of detail to put in a public forum! And this is a pretty
complex situation. I would recommend (if it hasn't been done yet) that
there be a meeting of heirs with the CPAs for the two estates and the
trusts to let you know about how this all will shake out for tax
purposes. There will be Schedules K-1 in one of two circumstances:
(a) There were distributions made from either the estates or the
trusts to the beneficiaries; or
(b) The estates or the trusts terminated.
The estates can have any fiscal year that ends within the first 12
months of death. If the trusts were originally set up as living
trusts, the estate can make an election to have the trust take the
same year-end as the corresponding estate. That means, for example,
that an estate with a July fiscal year, and that distributed assets to
heirs, in, let's say, December 2009, would issue a 2009 Schedule K-1
sometime after July 31, 2010, and you would report its results on your
2010 return.

Good planning suggests that if the estates or trusts have significant
income (other than capital gains and qualified dividend income), there
should be discussions about distributing income to the heirs, because
the tax schedule for estates and trusts is very steep, reaching 35% at
$11,200, in 2010, and many heirs won't have that high a tax rate.

The Land Trust sounds like it may be a Grantor-type Trust. You don't
get a Schedule K-1; instead you get information that allows you to
report your share of results directly on your returns (for example on
Schedule E page 1).
 
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M

Mark Bole

Tom said:
That's a lot of detail to put in a public forum!
I thought so too, at first glance, but it's really not, when you look at
it more closely. No dollar amounts, "Uncle Smith" could be anybody.
Maybe other proper nouns were made up?

It is a good amount of detail for getting good answers, but not
necessarily disclosing private or confidential information.

And this is a pretty
complex situation. I would recommend (if it hasn't been done yet) that
there be a meeting of heirs with the CPAs for the two estates and the
trusts to let you know about how this all will shake out for tax
purposes.
Amen. It's hard to judge without access to the actual trust documents
and wills. Need a lawyer involved, given the implied level of investments.



There will be Schedules K-1 in one of two circumstances:
(a) There were distributions made from either the estates or the
trusts to the beneficiaries; or
(b) The estates or the trusts terminated.
Right, but there are additional circumstances which still require filing
a trust or estate income tax return. Even if the K-1's report no items
of income or deduction, still a good idea to provide them for
documentation's sake.

The Land Trust sounds like it may be a Grantor-type Trust. You don't
get a Schedule K-1; instead you get information that allows you to
report your share of results directly on your returns (for example on
Schedule E page 1).
I'd like to know more about Land Trusts, or at least where to find more
info.

-Mark Bole
 

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