Inherited IRA trust

[maw246]

My father-in-law passed away in 2019 and he left part of his IRA to a his wife and part to my wife in a conduit trust. The purpose of the trust was to be able to stretch contributions over my wife's life. I am struggling to understand which tax forms and how to file for this trust. All income inside the IRA is not taxable only the distributions and then they should be taxable to my wife. The 1099R lists the Trust's EIN as the Recipient. The K1 generated for my wife has $0 distribution even though there was a distribution. Is the distribution from the IRA the Trust income which was then distributed? Do I need to file  a form 5305?

[tagteam]

Your post was slightly confusing in the sense that you mentioned details concerning the 1099-R, but then also that there was a K-1 (presumably received?) that did not reflect any income that might be taxable to your wife.

Further, your profile indicates might be using TurboTax Business. Is that the case and, if so, are you attempting to prepare the 1041 and K-1? 

[maw246]

Am trying to file 1041 (if appropriate) which should generate K1 for distribution to my wife. Have only received the 1099R from IRA. 

[KarenM90]

As tagteam asked, can you clarify what role you play in this scenario?

Are you the Trustee?  

You will need an EIN for the Trust if you don't already have one (one wasn't needed up until now) if you answer YES to any of the questions in this IRS link.  (ie, the trust you are referring to is no longer a grantor (revocable) trust)  The link will take you to that application when you choose YES to that question.  Do I need an EIN?

Conduit trusts are trusts distribute IRA distributions (and RMDs) to the trust beneficiaries.  

A Form 1041 will need to be filed, and the 1099R will be entered as a distribution within the trust.  The Trust will then distribute the IRA proceeds to the Beneficiaries.

[tagteam · Accepted solution]

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@maw246 wrote:

Am trying to file 1041 (if appropriate) which should generate K1 for distribution to my wife. Have only received the 1099R from IRA. 

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Click the Federal Taxes tab, click Income, and then click the Start button to the right of Other income or loss (see the first two screenshots). Enter the amount from Box 2a as other income.

Note that you will have to make a distribution in the Distributions section (under the Federal Taxes tab) of the program.

[trust812]

Do Conduit Trusts only to distributions that have the Trust as an IRA Beneficiary? In other words, I am assume that a Conduit Trust only has to distribute the IRA money when it is received to the Trust Beneficiaries and doesn’t have to distribute other NON IRA Trust income immediately. Is that correct?

My father has a Trust and I am trying to help him. Unfortunately his lawyer’s tax knowledge seems to be lacking. I am familiar with the new Secure Act where money to some beneficiaries has to be distributed within 10 years. My father wants it to be a Conduit (vs. an Accumulation) Trust where the money received from the IRA to his Trust has to be distributed right away. Currently there is nothing in his Trust to indicate whether it is a Conduit Trust vs. an Accumulation Trust. If my father had his lawyer add a clause like this would it suffice and make it a Conduit Trust?:

Trust as an IRA Beneficiary: This is a Conduit Trust and requires that all amounts received from the Grantor’s IRA be distributed to the Trust beneficiaries upon receipt by the Trustee in the following manner:

(i) Distribute one half (1/2) of the amount received from the IRA to John Doe. 

(ii) Distribute one half (1/2) of the amount received from the IRA to Jane Doe.