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Old 03-28-2017, 11:06 AM
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Final 1041 for a irrevocable trust

Mother died May 2016 with simple irrevocable trust in place for many years. Small NY estate so, no Federal Estate Tax, etc. Trust funded with house (she had life estate) and some shares of one large corporation stock where she received quarterly dividends passed through the irrevocable trust. Normally, she paid tax on dividends on her individual 1040. She received over $600. in dividends in 2016 before the shares were distributed to individual beneficiaries. So, this is the last year the trust will make any money or does the property sale need to be reported on a trust return? I will file her final income tax return and report the final dividends before April 18, 2017. When the house sells (probably $150,000.) does that figure into a 1041 and necessitate a trust return or is that not considered a trust income? The proceeds will be distributed to beneficiaries in 2017. Thanks!



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Old 03-28-2017, 05:15 PM
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Mother died May 2016 with simple irrevocable trust in place for many years. =====> A trust is formed under state law. You may wish to consult the law of the state in which the organization is organized.

Small NY estate so, no Federal Estate Tax, etc. Trust funded with house (she had life estate) and some shares of one large corporation stock where she received quarterly dividends passed through the irrevocable trust. Normally, she paid tax on dividends on her individual 1040. She received over $600. in dividends in 2016 before the shares were distributed to individual beneficiaries. So, this is the last year the trust will make any money or does the property sale need to be reported on a trust return? =======>she needs to report the div income on her final 1040; in general unlike a revocable trust, an irrevocable trust is treated as an entity that is legally independent of its grantor for tax purposes. Accordingly, trust income is taxable, and the trustee must file a tax return on behalf of the trust. If income is distributed to trust beneficiaries or if a charitable deduciton is claimed, additional tax documentation is required.so,The IRS does not tax a trust for dividends that it distributes to its beneficiaries, whether that dividend payout is required by the trust document or not. Instead, the beneficiary is liable for taxes on these dividends. The payments to beneficiaries are reported by the trustee on Form K-1, copies of which must be sent to the beneficiary and attached by the trustee to Form 1041. On the Form K-1, the trustee reports qualified dividends on Part III, Line 6a, and ordinary dividends on Line 6b


I will file her final income tax return and report the final dividends before April 18, 2017. When the house sells (probably $150,000.) does that figure into a 1041 and necessitate a trust return or is that not considered a trust income? The proceeds will be distributed to beneficiaries in 2017=======>as this is a irrevocable trust, Irrevocable trusts are a whole different matter. When you fund such a trust by transferring ownership of property into it, you give up control and any opportunity to take the assets back. For this reason, after the transfer, you would no longer report gains on your personal tax return on yur 1040. This type of trust is a separate tax entity and requires a tax identification number. If you create a simple irrevocable trust, this means it's required to disburse all its income every tax year and the disbursements are taxable to the beneficiaries as income. Capital gains are not income to irrevocable trusts. They're contributions to corpus ? the initial assets that funded the trust. Therefore, if your simple irrevocable trust sells a home you transferred into it, the capital gains would not be distributed and the trust would have to pay taxes on the profit.



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