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Old 01-21-2015, 11:39 PM
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1041 Filing requirements

I am the fiduciary, trustee, for my brothers living trust. He established the trust in September of 2013 and moved his home into the trust as its only asset. He passed away in February of this year. As the trustee, I placed the home on the market and sold it placing all the proceeds, less expenses, into the trust's bank account.
I have several questions.
1. The trust has two beneficiaries to whom I make regular monthly payments to. What method (tax form) do I use to inform them of their tax liability. I'm assuming 1041 K, but really do not know.

2. Do I report the sale of the home to the IRS under my brother's final tax return or do I report it on a 1041 as well? Is the sale considered income and therefore taxable?

3. Each of the two beneficiaries receives the same amount each month and the trust will have no appreciable income save for a small amount of interest. How do I report subsequent years?

I am well versed in my responsibilities as the fiduciary with one glaring exception and that is the tax aspects of my duties. The trust isn't very large and I don't want to squander any assets on unnecessary cost if I can do these things myself. Any assistance you can provide is greatly appreciated.



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Old 01-22-2015, 02:32 PM
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1. The trust has two beneficiaries to whom I make regular monthly payments to. What method (tax form) do I use to inform them of their tax liability. I'm assuming 1041 K, but really do not know.=====>>>>>> the rules of taxation on irrevocable trusts can vary depending on the election of the trustee and the beneficiaries of each individual trust. You,a sa trustee, may choose to treat an irrevocable trust as an independent taxing entity, or it may treat the trust as a pass-through entity. If the tax liability passes through to the beneficiaries then the trustee will, on an annual basis, prepare and deliver to each of the beneficiaries a schedule K–1. The sch K–1 identifies the income tax liability of each beneficiary. So, Distributions to beneficiaries of an irrevocable trust, however, are taxable to beneficiaries at ordinary income tax rates.If, on the other hand, you treat the irrevocable trust as an independent taxpaying entity, then you will pay all trust income from the assets of the trust, and the beneficiaries will not have any tax liability.
.At some point, the terms of the living trust may require the trustee to distribute all or some of the trust assets, also known as the principal, to beneficiaries.

2. Do I report the sale of the home to the IRS under my brother's final tax return or do I report it on a 1041 as well? Is the sale considered income and therefore taxable?=====>>>>>>>>>>> The trustee must file Form 1041 if the trust has any taxable income for the year or if it has at least $600 in income for the year even if none of it is taxable.Once a grantor transfers assets to a living trust, any income accrued to the principal is taxable. The trust must report all trust income on Form 1041 ; however, this does not necessarily mean the trust is liable for paying the income tax. When the trust document requires the trustee to distribute trust income to the beneficiaries, the beneficiaries are responsible for all tax payments on those distributions as mentioned above. If the trustee has discretion as to the timing and amount of income distributions, then the trust is responsible for the tax payments, irrespective of how and when the trustee decides to distribute the income.. You need to file a final tax return for your brother. Then, you'll need to obtain a new tax ID for the trust. It is always a good idea to file a return for the trust, even if there is no income, to avoid the IRS coming back to you later.




3. Each of the two beneficiaries receives the same amount each month and the trust will have no appreciable income save for a small amount of interest. How do I report subsequent years?============>>>>>>>>> trust income is taxable, and you must file a tax return, 1041, on behalf of the trust. as income is distributed to trust beneficiaries, additional tax documentation is required; Since the individual income tax rate is lower than the trust income tax rate, trusts normally distribute their income to their beneficiaries if they are individuals. If the trust distributes any of its income to beneficiaries, you must prepare Sch K-1 for each beneficiary who has received a distribution. The trust must also file Sch K-1 with the IRS if it made any distributions to beneficiaries during the tax year. A beneficiary doesn't have to submit Sch K-1 with Form 1040 but will need it to calculate his own tax liability.

I am well versed in my responsibilities as the fiduciary with one glaring exception and that is the tax aspects of my duties. The trust isn't very large and I don't want to squander any assets on unnecessary cost if I can do these things myself



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Old 01-22-2015, 03:06 PM
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Thanks for the advice

Wnhough, Thanks for the advice. Tax requirements, as previously stated, are not my strong suit.



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