Trust - Mom died May 2022, Trust became irrevocable - which option to choose in TurboTax business?

[ahansen55555]

My mother died on May 14, 2022, and her living Trust became irrevocable.  I thought this would be straightforward, but I am unsure how to proceed. I am using the TurboTax Business desktop application.

For the section "Do You Need to Take Care of a Trust or Estate?", I don't know which option to choose, as they both seem to apply.  It is a trust, but my mother passed away.

    Option 1 - A trust. This will say "trust" in the title of the document.

    Option 2 - An estate.  This is for someone who passed away.  There may be a will.

I ran through the process using both options, and only option 2 allows me to specify my mother's date of death, so maybe that is the right option?

However, I am wondering if I even need to file taxes for this for 2022.  In September I liquidated all mutual funds associated with the Trust and transferred the proceeds to the Trust bank account, then distributed most of it to the Trust beneficiaries.  The liquidation resulted in a net loss of $3,400 (per the 1099-B forms received).  Since I don't have a gain of $600 or more, should I not have to file?

But, if I don't file, how do I generate the K1 forms for the beneficiaries to realize their portion of the loss?  Or, do I wait and file a single final tax return once the Trust is fully distributed and closed out?

Sorry for the long-windedness.

[Anonymous_ · Accepted solution]

I am sorry for your loss.

If all of your mother's assets were in the trust, then you most likely will only have to file an income tax return for the trust (Form 1041) and, possibly, a final return (Form 1040) for your mother.

See https://www.irs.gov/publications/p559#en_US_2022_publink100099499

Note that the 1099-B you received may not reflect the correct basis for the mutual funds. The correct basis would be the fair market value on the date of death of your mother (May 14, 2022). Any gain or loss to be reported on Form 1041 would be calculated by subtracting that basis from the sales proceeds.

Also note that even if there is a loss on the sale of the mutual funds, that loss can be passed through to the beneficiaries (via K-1s) by filing a final 1041 for the trust.

[ahansen55555]

Hi,

Thanks @Anonymous_ for the speedy response. Yes, I've filed a final personal return for my mother, so that task is complete.  Also, the mutual fund institutions had updated the cost basis for the funds to the date of my Moms death of 5/14/22, which was reflected in the 1099-B forms I received, so we should be good there too.  Thank you for pointing that out, if that was not in place the tax situation would have been a different story!

Just to clarify, when using TurboTax business, would selecting either option (Estate or Trust) produce the 1041?  It seemed like only the Estate option asked questions about my Mom's death date. The phrasing on that page was confusing.

Also, it seemed like with the Estate option, it defaulted to a fiscal year that would not end until April 30 2023.  Should I wait until then to file the taxes?  Or should I select the calendar year instead?

Finally, since the Trust is not yet closed, the K1's I generated for each beneficiary were still blank.  Will I need to file one more return for the Trust next year after the Trust has distributed all the funds and been closed?  I assume there is some sort of carryover within the Trust for the losses until next year?

Hopefully these questions make sense.  I appreciate the help.  If I need to post these follow up questions in a separate post I can do that, please let me know.

Thank you!!!

[Anonymous_]

Either the trust or estate option would produce a 1041 but you have a trust, presumably, in which all of your mother's assets are contained so that is what you should select.

[Anonymous_]

Also, trusts typically report on a calendar year basis (estates can do so as well).

Regardless, merely because the trust has not yet terminated and filed a final return, does not necessarily mean that there will be no K-1s; you need to follow the terms of the trust with respect to distributions.

You may, indeed, have to file more than one return for future tax years.

[ahansen55555]

Thanks @Anonymous_!  I was able to complete and file the return for the Trust.  The Federal return was accepted, but CA is being rejected for some reason.  I'll post that issue separately.