How to report income from a TOD account that accrued after death of owner, but before transfer to beneficiaries

[ricardolomavista]

Our mother died in June 2020, and my brother and I were 50/50 beneficiaries of a TOD brokerage account.  It took about 3 1/2 months to transfer the account to two separate accounts, one in each of our names.  During that period, dividends were paid and some scheduled stock sales were completed.  In February, we received a single 1099-C in my mother's name from the broker.  It covered the period from January 1st,  2020, to September 8, the date the account was divided and transferred to each of us.  The broker says they will not split the amounts into separate 1099's for beneficiaries.  They will issue only one 1099 per account.  I can easily separate the sales and dividends from the date of death, and can calculate the stepped up basis, but turbo tax is not clear on how to enter the income into my tax return. 

To report my mother's income,  I imported her 1099C into turbo tax and adjusted the gains and dividends received after her date of death to show they belonged to someone else (TOD beneficiaries).  This seems correct following the turbo tax guidance.

But I'm stalled trying to decide how the my brother and I each report  the income from my mother's 1099  for which we are responsible. 

Do we report our mother's entire1099 in our tax returns, as if we were paid by the broker, and adjust the sales/dividends to reflect the share for which we are responsible?

Or do we consider my mother the payer, and simply calculate and report the gains/dividends for which we are each responsible, as if we had received an individual 1099?

Turbo Tax is guidance is unclear (at least to me) as to the proper way to do this.

The TOD account was the only significant item to deal with in our mother's estate, as she had consolidated her savings, sale of house, etc., into one account when she moved into assisted living.  Consequently, we did not probate, or have a court appointed personal representative. 

[gloriah5200]

If the brokerage company was distributing your mother's account to her TOD beneficiaries, it should not have been reported on Form 1099-C, Cancellation of Debt.

Please provide clarification on the actual tax reporting document received from the brokerage company if it was NOT a 1099-C, Cancellation of Debt, where debts owed to someone were cancelled instead of paid by the estate upon death.

Transfer on Death is an appropriate way to name the account so that it passes upon death to beneficiaries to avoid probate.

[ricardolomavista]

Sorry, my mistake.  It was listed as a 1099 Combined on their web page, which I mistook for a 1099C.  It is not a 1099C, but a 1099-B, 1099-INT, 1099-DIV, and 1099-OID in one file.  Only the 1099-B and 1099-DIV are populated.  Thanks for the correction.  

[fanfare]

when you receive income that belongs to someone else, you are a nominee.

the correct way to do it is to generate a 1099 form for the owner(s) showing their share of the money and also a copy to the IRS.

I don't have the IRS pub that details this here but you can look it up on IRS website.

[ricardolomavista]

In this case, it seems that my deceased mother is the nominee.  The brokerage reported her account as receiving the dividends and equity sales proceeds after her death, but before the account assets were re-registered to my brother and me.  Because there was no estate that required probate, we do not have a court designated personal representative.  Can I create a 1099-DIV for my deceased mother?

[gloriah5200 · Accepted solution]

I am sorry for your loss.

No, I disagree.  Your mother is not the nominee, you and your brother are the nominees.

Your mother was the original owner of the account.  Since the brokerage company liquidated the account to her two sons at death, then you will need to split everything up between the 3 of you.

Since the Combined 1099 was issued in your mother's ssn, then you will either report everything on the Combined 1099 in her return and then "nominee out" the portions belonging to yourself and your brother by listed a line item on each type of 1099 called Nominee distributions and subtracting out the amounts belonging to others after her death.

Then, you and your brother will need to claim your halves of the amounts nominee'd out of her return into your own returns.  

Otherwise, you can break it all down by paper and report only the portion belonging to your mother before death on her return and then each of you brothers will split the remaining portions on your own individual income tax returns.

Your mother is NOT the nominee because the 1099 combined docs came in her name and ssn.  You and your brother are the nominees because you did not receive a combined 1099 in your names and ssns even though you do each need to claim your share on your own return.

Some people prefer to create the two sets of 1099s for the nominees from your mother's ssn, but that is not necessary as long as you keep records in case IRS later sends a letter of inquiry. 

There is no need to create a 1099-div for your deceased mother, she already has one..

For additional information, please refer to the following:

How to handle Death in the Family on the tax return

[Edited 03/02/2021|3:50 pm pst]

[ricardolomavista]

Thank you for a very succinct and clear explanation of the process.  I've been going in circles trying to figure this out.  

[fanfare]

"Your mother is NOT the nominee because the 1099 combined docs came in her name and ssn.  You and your brother are the nominees because you did not receive a combined 1099 in your names and ssns even though you do each need to claim your share on your own return."

This is backwards.

IRS Says:

Nominee/middleman returns. Generally, if you receive a Form 1099 for amounts that actually belong to another person, you are considered a nominee recipient. You must file a Form 1099 with the IRS (the same type of Form 1099 you received) for each of the other owners showing the amounts allocable to each. You must also furnish a Form 1099 to each of the other owners. File the new Form 1099 with Form 1096 with the Internal Revenue Service Center for your area. On each new Form 1099, list yourself as the “payer” and the other owner as the “recipient.” On Form 1096, list yourself as the “Filer.”

What is being suggested by @gloriah5200 

is to avoid all this and just fudge TurboTax into dividing everything into thirds.

That's your call.

[sallyawalk]

Sorry, but I do not find this answer helpful.  In my situation, I have several TOD accounts that didn't get transferred until a few months after the death of the owner (my dad).  There were 1099-INT, 1099-DIV, and 1099-B forms that all had some amounts on them that legally belong to me or my brother (50/50 split) because of things that happened after dad's date of death.  I understand the accounting of it - my dad's return should show the 1099 info, with a nominee line for each of the 2 beneficiaries subtracting out their portions from after the date of death.  Our accountant has helped with that, I think dad's return looks right.

However, the accountant adamantly refuses to issue any 1099s to us (the TOD recipients).  So somehow my brother and I have to report those amounts we owe the tax on into Turbotax.  The actual mechanics of how to enter that information are elusive.  I have the original 1099s for my dad.  I understand how each one is supposed to be split, and the nominee lines on my dad's return seem correct to me (although summarized - for example, all the dividends from different sources are in one lump nominee number).  What I CANNOT figure out is how to get that info into Turbotax Deluxe (desktop). I can't find any examples or answers to the specifics for each type of form.  Any advice on how specifically to get Turbotax to enter that would be helpful.

As a note, I saw advice online to use the "other income" section of Turbotax, but given that some of these are 1099-Bs with capital gain implications, and others are qualified dividends (not taxed as ordinary income), this seems like an incorrect approach to me. 

[fanfare]

"some of these are 1099-Bs with capital gain implications,"

It is straightforward.

Since you will  not get a 1099-B  for your share from the accountant, enter your share amounts as "stocks without a 1099-B" sales category C or F.

[karl41822]

According to the IRS, your mother is the nominee. Per  https://www.irs.gov/instructions/i1099gi#:~:text=Generally%2C%20if%20you%20receive%20a,the%20amounts....

A. Who Must File

See the separate specific instructions for each form.

Nominee/middleman returns.

 

Generally, if you receive a Form 1099 for amounts that actually belong to another person, you are considered a nominee recipient. You must file a Form 1099 with the IRS (the same type of Form 1099 you received) for each of the other owners showing the amounts allocable to each. You must also furnish a Form 1099 to each of the other owners. File the new Form 1099 with Form 1096 with the IRS Submission Processing Center for your area. On each new Form 1099, list yourself as the “payer” and the other owner as the “recipient.” On Form 1096, list yourself as the “Filer.” A spouse is not required to file a nominee return to show amounts owned by the other spouse. The nominee, not the original payer, is responsible for filing the subsequent Forms 1099 to show the amount allocable to each owner.