Grantor's Trust - how to file 1041 upon death of grantor?

[kmd]

For 8 years, I have filed a 1041 for my parents' EIN as a grantor's trust with a pointer to their 1040 where taxes were paid on trust income under their SSNs.  My father passed and then my mother in 9/2020.  First, do I need yet another EIN (again, already have one) even though I am already trustee and have been for 8 years?  I hope not as it will be a pain to transfer all of their brokerage/bank accounts.  Secondly, how do I handle my mom's 2020 taxes?  I am thinking I do the usual 1040 for my mom and the 1041 as a grantor's trust again but only covering through her passing (September 2020).  Then what, do I need another 1041 for the trust alone which now becomes an simple trust for September 2020 through 12/31/2020?  Or, do I do another 1041 and also Form 8855 so that the trust can avoid paying taxes until the fiscal year has passed and also avoid estimated tax.  This will give me more time to distribute assets to the two beneficiaries.  Thank you for any insight and advice.

[M-MTax]

The trust needs a new EIN....https://www.irs.gov/businesses/small-businesses-self-employed/do-you-need-a-new-ein. File a 1041 and this time it will become a new entity as of the date of your mother's death. Anything before that date you can put on your mother's return.

[kmd]

Thank you.  But how am I going to know exactly what part of dividends and interest were paid to her prior to death if it all comes on a 1099 at the end of the year?  So, what happens to the old EIN?  Do I reference it when I apply for a new one?  This doc seems to indicate it's not essential to get the new EIN - https://d3n8a8pro7vhmx.cloudfront.net/kflaw/pages/1026/attachments/original/[phone number removed]/1... Specifically, it says, "A situation might arise where a grantor trust did have a sepa­rate EIN while the grantor was alive: Should that number be used after the grantor's death so that new accounts do not need to be opened? Or should a new EIN be obtained to simplify the pro­cess of preparing income tax returns for the year of death? The solution may depend upon the number of accounts involved, and how much income was earned prior to death. At a minimum, con­sider obtaining a new EIN and opening new accounts to avoid the problem of manually allocating income between pre-death and post-death periods."

[M-MTax]

You STILL need a new EIN....look at the IRS link.....and if everything gets reported on one 1099 you have to report ALL of it on the return with the EIN on the 1099 and then subtract the portion received as a nominee. The only way to do this is to look at the broker or bank statements because those will have the dates interest, dividends, gains, and whatever were paid. This process is ALWAYS a hassle and the only thing you can do is be glad you only have to do it once. 

[kmd]

Thanks, got it.....ok, I'll figure out what part of 1099-DIV and 1099-INT goes on her 1040 vs. the 1041 (old EIN)....but that next brings the question - what do I do for the 1041 old EIN.  Do I do a 1041 for the old EIN, and then what about the 1041 for the new EIN?  Do I need two 1041s for the old EIN which was always just used as a grantor's trust previously?  And do I still file this 1041 with the old EIN covering just the 2020 year?  Note that all 1099-INT and 1099-DIV were paid to the old EIN for 2020.  Also, I did what you told me and requested the new EIN and named the trust as IRREVOCABLE.  So now, for this brand new EIN, do I go to all the banks and brokerages and request everything from the old EIN be moved to the new EIN effective as of the day after her death in 2020 or as of January 1, 2021 or as of today, or ?  Do I need a new certificate of trust for this new EIN?  I am trying to do this without a lawyer because the last one billed us $6000 just to make me trustee.  But maybe I do need a CPA.

[SamS1]

I would suggest filing a final return under the grantor trust EIN from 1/1 to date of death recording the income earned during that time on the final 1040.  Then set up the new EIN for the simple trust and fund it with the assets from grantor trust.  You will need to re-register the assets under the new trust name and EIN at the brokerage houses.  It might be cleaner if you just set up a new account under the simple trust name and EIN then transfer in the assets versus just changing the name on the current account..  Prepare the 2020 1041 for the new trust with income from date of death to 12/31 flowing out to beneficiary on the 1041 K1.  You could check with the brokerage firms if they could split the 1099s based on the date of death.

[kmd]

Thank you so much.  Do I need to explain on the grantor's trust EIN coving 1/1/2020 - 9/16/2020 that the 9/16/2020 to 12/31/2020 income reported under that old EIN will be paid on the new EIN?  How does the IRS know that the old EIN is being replaced by the new one?  Will I have to do any more 1041s for the old EIN?  How to correlate that the new EIN is replacing the old one that was only used for the grantor's trust?

One more question about the "65 day rule" - should I quickly (by 3/6) do a distribution to the two beneficiaries to make sure any income in 4Q2020 is paid out so that that income is not taxed at the higher trust rate, or do I not need to worry about this if I file the 1041 with Form 8855 (Sec. 645 election) such that estimates and taxes will not need to be paid until after the fiscal year?  I have not made any distributions to any beneficiaries yet.  And if I do a distribution immediately as part of this 65 day rule, do I need to issue a K-1 to the beneficiaries, which they will need to report for their 2020 taxes, or will it be reported on their 2021 taxes?  Thank you so much!!

[kmd]

Hmm, just to answer my own question (I think).....seems the 65 day rule does not apply for a simple trust using Form 8855 for Sec. 645, as that would be a fiscal year as opposed to calendar year, so the worry about tax in calendar year 2020 goes away as it will be paid by beneficiaries via K-1s in 2021.....right?

[kmd]

I am still unclear on how I can just report some calculated post death part of the 1099s that went to the OLD EIN and place this income under the NEW EIN on a 1041 when there's nothing to tie it to the new EIN as interest and dividends have already been reported for 2020.  Furthermore, when I applied for the NEW EIN, the IRS form is telling me the 1041 is due 3/15/2021....but I doubt I'll have assets moved to the NEW EIN by then.  I'm afraid this is too complex for TurboTax, and I'll have to go another route.

[M-MTax]

Go a different route @kmd because you in addition to the other stuff you are making a 645 election which is WAY beyond anyone less than a tax pro with that type of experience. You can do this in pro software and even in Turbotax....I think.....but you REALLY have to know what you're doing. The 645 election alone often requires getting ANOTHER EIN at a future date. 

[kyjetial]

Do i need 2 different TTtax programs to file 1041 and 1040?

[Vanessa A]

Yes.  You need TurboTax Business for the 1041and TurboTax Premier to report the K-1 that the 1041 will generate. 

[kmd]

Yes, TurboTax Business for the 1041, and no, you can't do a 1040 with it.  You will need the usual flavor - TurboTax Premier for the the 1040.  So, yes, you must buy both versions.

[kyjetial]

Are the 2 programs completely independent of each other, no sharing of information?

We have used TurboTax for many to file our joint return, but this is new. I can use a lot of help this year.

Thank you, S

[AnnetteB6]

Yes, they are two separate and independent programs.  They do not share information.  

@kyjetial