Trust Return

[nancysmall60]

Hi,

I am a trustee of a trust.  The grantor of the trust passed away in June 2019. The trust  was distributed sometime in March of 2020 to 3 people. I am trying to file the taxes for January 2020 to the time of distribution using Turbo Tax Business (I assume that is the only turbo tax software to use for a 1041). 

Does  the trust have beneficiaries? I am thinking it does not because the "Beneficiaries" did not get a distribution until Mid March and I am trying to pay taxes with estate money (not beneficiary money)  for the time stated above. I hope this make sense.  Also, what is the story with K1s?

Thank you very much. This is much harder than I thought it would be.

[NCperson]

your dates are kinda confusing me.  appears the trust distributed the assets to three people in March, 2020 and you are trying to complete the Trust's 2020 tax return, is that right.

1) fill out the 1041 form

2) fill out the associated K-1's for the beneficiaries - yes, there are three beneficiaries 

The Trust doesn't pay taxes;

those K-1's will transfer any income and expense to the three beneficiaries and they will post them on THEIR tax returns.  Any impact of income or expense and therefore the resulting tax will be felt on THEIR tax return.

the term 'trust money' and 'beneficiary money' is really one in the same once  the K-1's are distributed.  Why are you trying to make the differentiation? that may be hanging you up?????

Doesn't the cash being distributed reflect the income, net of expense on the K-1? 

these Trust 1041's can be confusing if you are doing for the 1st time and only 1 time, it may be worth spending the money on an accountant

[NCperson]

who filed the 2019 tax return????? weren't there K-1's at that time as well, since the Grantor died in 2019?

[nancysmall60]

I used a CPA for the decedent's personal taxes in 2019. The CPA said the trust did not have to do a return as everything was going on the personal tax return. Was that wrong?

Thank you

[Anonymous_]

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@nancysmall60 wrote:

Thank you very much. This is much harder than I thought it would be.

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It always is harder than anyone thinks it would be, which is the reason you will see quite a few recommendations for trustees to engage the services of a tax and/or legal professional.

If trust assets (cash or property) have been distributed to three people, the presumably those people are beneficiaries; a trustee cannot simply distribute trust funds to anyone unless authorized by the trust document (which is where you will find the beneficiaries listed). The basic rule is "no beneficiary = no valid trust" since you need at least a grantor, a trustee, and a beneficiary.

A K-1 that is generated by a 1041 and issued to the beneficiary(ies) of a trust lists shares of items of income, gain, deductions, credits, but not distributions of the corpus (principal) of the trust. If the income is recognized and reported on the trust return (Form 1041) and the trust assumes the tax liability, there should be no need for K-1s to be issued. Note, however, that distributions from the trust to the beneficiary(ies) carry with them DNI (distributable net income) so, generally, a beneficiary would be responsible for reporting the income, gain, et al, from the K-1 on that beneficiary's individual income tax return (and assuming the concomitant tax liability).

[NCperson]

well, yes and no 

The Trust has do complete a tax return with K-1's to cause the income (and any tax) to go on the beneficiaries income tax.  

is it possible the CPA said, the trust doesn't have to pay any tax because everything is going on the beneficiary's tax return? that would make sense

Suggest calling that CPA and clarifying what you need to be doing for 2020. 

[Anonymous_]

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@nancysmall60 wrote:

I used a CPA for the decedent's personal taxes in 2019. The CPA said the trust did not have to do a return as everything was going on the personal tax return. Was that wrong?

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Not necessarily. If the trust generated no income or gain (or otherwise had no final deductions or credits to pass through), then there would be no need to file an income tax return for the trust.

[Anonymous_]

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@NCperson wrote:

Suggest calling that CPA and clarifying what you need to be doing for 2020. 

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I absolutely concur with @NCperson here; contact your CPA @nancysmall60 

[nancysmall60]

Ok...now I am really confused....LOL.

Yes, the trust was distributed in March 2020 and I am trying to do the Trust's tax return. I did receive 1099-DIV and 1099-B for the time frame of Jan. 2020-March 2020 which is why I thought the trust would pay the taxes on those. 

I looked at the K1 form and I would have no idea what the amounts of the distributions would be. Were the 3 of us supposed to get a K1 from the investment company and then use that info to fill out the 1041's K1s?

I just really wanted to pay the little bit of taxes due from Jan. 2020-March 2020 out of the money that has been held aside for tax purposes and not pass that on to the beneficiaries. Is that not how it works?

Thank you very much.

[NCperson]

<<were the 3 of us supposed to get a K1 from the investment company and then use that info to fill out the 1041's K1s?>>

whomever completed the 2020 tax return should be providing the K-1's to the beneficiaries, so yes the 3 should receive K-1s but I can't comment the source is the investment company, unless they were tasked with completing the 2020 taxes ,

Call you CPA on Monday and enjoy the outdoors today 😊

[nancysmall60]

The CPA is an ass and I always have issues with him calling me back but I will try.

[Anonymous_]

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@nancysmall60 wrote:

Were the 3 of us supposed to get a K1 from the investment company and then use that info to fill out the 1041's K1s?

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Receiving K-1s from the investment firm (rather than the standard tax reporting forms, such as 1099s) would be highly unusual since it would indicate the firm prepared the 1041.

Rather, the firm appears to have issued the correct statements leaving it to the trustee of the trust to handle the tax reporting.

Regardless, I agree with @NCperson; contact your CPA or, if your current CPA is a jerk or incompetent, seek guidance from a different tax professional.

[nancysmall60]

I have a thought.....I think I was confused.  The K1 info is only the info from the the brokerage firm from Jan 2020-March 2020, correct? So that amount of taxes is what will be split to pay between the three of us. Am I right? I do have that info.

[nancysmall60]

Am I correct about the statement I made in my last message regarding the taxable amount from Jan. 2020 to distribution will be split 3 ways between the beneficiaries using K1s?  Is the only way to do it vs. me wanting to just have money set aside to pay the 2020 taxes?

Thank you

[Anonymous_]

You stated in an earlier post that you received an 1099-INT and 1099-DIV from the investment firm. 

Did you also receive a K-1? I suspect not so that would be left to you, as trustee, to determine what has to be distributed per the trust document. Typically, you would make a final distribution to the beneficiaries which would include all of the income and assets of the trust (in this instance split three ways).