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Old 12-16-2017, 12:57 PM
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Final filing for Trust

Decedent died in early 2015 with an inter-vivos revocable Trust. At that point the trust became an irrevocable trust, and, as trustee, I filed for an EIN and filed the 1041 for tax year 2015.

Q1. Decedent's life insurance had the Trust listed as beneficiary. I ended up filing the proceeds as income to the Trust, and paid the $5,000 tax bill. Did I do the correct thing? Is life insurance considered income to the Trust?

The Trust consists of a single bank account, earning $23 a month in interest. I have been waiting for the ~$250,000 check for the decedent's return of equity deposit from the senior living center, which was originally paid from the trust. It arrived late 2017. Since these funds orignally came from the trust, I believe this check is part of corpus, and not income. Am I correct?
Trust has a small set amount to be considered discretionary funds to use for children and grandchildren. The remainder, principle and income, is to be distributed to 5 named, qualified, charitable missions.


Q2. Since the interest income was less than $600, no 1041 was filed in 2016.
Does the 2016 interest become part of the principle at year's end, or does that interest still have to be considered as income when it is distributed in 2017?

Q3. I am distributing all of the funds in 2017, and closing the trust. However, I don't expect all of the checks will clear before Jan.1, 2018, which means there will be an interest payment in 2018. Can I use the 65 day rule to effectively move that interest payment back to 2017, and therefore not have to worry about filing anything for the closed trust in 2018? The 2018 interest amount would be included in the 2017 K-1s.

Q4. If closing the trust is not possible, due to the 2018 interest payment, could I have bank checks issued from the trust, to all of the beneficiaries? This would guarantee the account could be closed in 2017, but I am not sure if creating bank checks from the Trust would create any tax problem for a beneficiary.



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Old 12-17-2017, 10:20 AM
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Q1. Decedent's life insurance had the Trust listed as beneficiary. I ended up filing the proceeds as income to the Trust, and paid the $5,000 tax bill. Did I do the correct thing?========>>plz see below.

Is life insurance considered income to the Trust?==========>> I guessit depends; First off, Form 1041 is a trust return not an estate return. If the insurance proceeds were paid to named beneficiaries, it's not reported on 1041 at all. the proceeds of insurance on the decedent's life are includible in his gross estate under a special provision of the Code. This includes proceeds receivable by the executor of the decedent's estate. It also includes proceeds receivable by other beneficiaries but only if the decedent possessed one or more incidents of ownership in the policy at his death. Thus it is possible to keep insurance proceeds out of the decedent's estate by naming a beneficiary other than the insured's estate and giving up all incidents of ownership in the policy. survivorship payments receivable by any beneficiary under certain con tracts, agreements or plans are includible in the decedent's estate to the extent the value of the payment is attributable to amounts paid by the decedent or his employer.


The Trust consists of a single bank account, earning $23 a month in interest. I have been waiting for the ~$250,000 check for the decedent's return of equity deposit from the senior living center, which was originally paid from the trust. It arrived late 2017. Since these funds orignally came from the trust, I believe this check is part of corpus, and not income. Am I correct?
Trust has a small set amount to be considered discretionary funds to use for children and grandchildren. The remainder, principle and income, is to be distributed to 5 named, qualified, charitable missions.

Q2. Since the interest income was less than $600, no 1041 was filed in 2016. Does the 2016 interest become part of the principle at year's end, or does that interest still have to be considered as income when it is distributed in 2017?=======>No part of the principle at year?s end nor it is considered as income when it is distributed in 2017. It is just interest income fo rth e year of 2016. If you are a beneficiary of an estate that is not required to distribute all its income currently, you must report all income that is required to be distributed to you currently whether or not actually distributed, plus all other amounts paid, credited, or required to be distributed to you, up to your share of distributable net income.

Q3. I am distributing all of the funds in 2017, and closing the trust. However, I don't expect all of the checks will clear before Jan.1, 2018, which means there will be an interest payment in 2018. Can I use the 65 day rule to effectively move that interest payment back to 2017, and therefore not have to worry about filing anything for the closed trust in 2018? The 2018 interest amount would be included in the 2017 K-1s.========>>no unless Accrual basis taxation include items when they are earned and claim deductions when expenses are incurred.So,unless thetrust is a cash basis taxpayer, it can not claim the expenses when paid.

Q4. If closing the trust is not possible, due to the 2018 interest payment, could I have bank checks issued from the trust, to all of the beneficiaries? This would guarantee the account could be closed in 2017, but I am not sure if creating bank checks from the Trust would create any tax problem for a beneficiary.==========>yes I believe so; pleas contact tax pro ,i.e., an IRS Enrolled AGENT/A CPA doing taxes in yur local area for your issues.



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Old 12-18-2017, 03:51 PM
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Thank you for the prompt response(s). Your site is a valuable resource.



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