Trust and interest reporting

[northgarden]

Hi

I am trying to figure out the best way to report interest between my deceased sibling and his trust ( He passed away in 2024) . I received a 1099 from his bank reporting the combined total of the interest he personally earned while he was alive as well as the interest the trust earned after he passed on one 1099 all in the name of the trust.  I called them and they won't change it on the basis " this is just how they do it"- even if it is not accurate.

Shouldn't the prorated  portion of the interest that was earned by him while he was alive be reported on his personal and final tax return ---with the remainder that was earned under the trust be reported under the trust? 

Any help you can offer will be greatly appreciated.

Thank You!

[DianeW777 · Accepted solution]

Yes, any interest earned while your deceased sibling was alive is reported on the final return of the decedent. The remaining interest will be reported on the trust return.

You can simply divide the interest appropriately and report on each return, keeping notes and the 1099-INT in your tax files.  You can choose to use the nominee procedure below so that the IRS is clear on where they should look for the income.

Nominee Returns.  This is how the IRS knows what you are doing.

Generally, if you receive a Form 1099 for amounts that actually belong to another person or entity, you are considered a nominee recipient. You must file a Form 1099 with the IRS (the same type of Form 1099 you received).  You must also furnish a Form 1099 to each of the other owners. 

File the new Form 1099 with Form 1096 (this is a transmittal for the 1099) by mailing to the Internal Revenue Service Center for your area. (Provided on the Form 1096)

• On each new Form 1099, list the trust as the payer and the other owner, as the recipient. On Form 1096, list the trust as the nominee filer, not the original payer.  The nominee is responsible for filing the subsequent Forms 1099 to show the amount allocable to each owner.

The forms filed with the IRS should be the red copy so if you don't have a color printer, go to the IRS website and order the forms here: 

• Form 1096
• Form 1099-INT

[northgarden]

Thank you - thank -you- thank you!!!! I really appreciate you taking the time to reply to my inquiry and for explaining it in such a simple way.

[northgarden]

Hi

I have recently become the trustee of what I believe is a rather simple trust overall.   Is my understanding correct that if a trust earns less than $600 in interest in a calendar year that a tax return is not required to be filed? If this is correct - is this under any circumstances or are there situations where a trust that has earned less than  $600 in income would be required to file a tax return?

Also is the tax year for a trust the same as it is for the rest of us filing personal returns in a calendar year or does a trust follow a different tax year?

Thank You!!

[DianeW777 · Accepted solution]

It depends. If all the taxable income received by the trust is interest and that amount is below $600 then you are not required to file a tax return for 2024. It must combine all taxable income to arrive at the right decision.

The tax year for your trust is the same calendar tax year unless you specifically requested a fiscal year.

[northgarden]

Thank you Again!!!!  I can't tell you how much I appreciate your feedback.  Just to be sure I am clear ... So the trust has not earned more than $600 in income since my brother died in Oct 2024. The credit union did issue a 1099 and reported all of the interest under the trust which was erroneous.  We have manually prorated that 1099 and allocated the portion to him that he he earned while he was alive on his final personal tax return, and so  the remainder of the interest that was earned was earned by the trust but again it less than $600 in total attributable to the trust.

There was a life ins policy and those proceeds have been distributed to his beneficiaries. Again - since the trust has not earned more than $600 in income/interest -- and if I am not required to file a tax return for the trust -does that also mean I dont' have to issue the K form to the beneficiaries?  

We are located in AZ- and it is my understanding in AZ that inheritance proceeds such as this are not considered taxable in AZ-- and only the interest the recipients earn on the inheritance after they receive it  is taxable.

Thank You Again!!!!!

[DianeW777 · Accepted solution]

Yes, you are correct. A form 1041 is not required since the income is below $600 for the year. If any amount remaining belongs to the beneficiaries, it should be disbursed as well.  For this reason you will have no reason to file 1041-K1 to issue to beneficiaries. 

If you applied for a EIN for the trust, once you are certain there is no income to report or distribute any longer you should file a first and final on the same return, just to close it out completely.  You can wait to do that for 2025 so you are certain there will be no further activity in the trust.

For Arizona (AZ), the income will carryover from the federal AGI and unless there is a accepted subtraction the income will be taxed there as well. AZ does not have an estate tax.

IRS FAQs for Life Insurance (would be the same for AZ).

Generally, life insurance proceeds you receive as a beneficiary due to the death of the insured person, aren't includable in gross income and you don't have to report them. However, any interest you receive is taxable and you should report it as interest received.