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Member
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Last Login: 10/17/2007 6:21:47 AM
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| I am trying to figure out "best practices" reporting on Form 1041 for an Administrative Trust for a first to die spouse. The surviving spouse's share of community property is included in the various assets (cash, investments, real estate) that have been titled in the name of the Administrative Trust. I assume that I report the gross amount (including surviving spouse's share) on Form 1041 so that the amounts reported agree to 1099's etc. The question is: what is the best way to "back out" the surving spouse's community share of income and expenses to be reported on her 1040? Can anyone recommend a reference publication that provides practical guidance on the use of an administrative trust that includes the survising spouse's share of community property? PPC is not much help.
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Power Member
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| I'm unaware of any official pronouncement. What I do is prepare an excel schedule that has a *Form 1099* column, a 1040 column (with the SSN at the top) and a 1041 column (with the EIN on the top). I list each income item and spread the amounts from the 1099 to the other two columns. I attach the spreadsheet to each return. On the returns themself, I put the 1099 amounts on whatever return they match and subtract out the amount going to the other entity. On the subtraction line I also give the EIN for the return where it appears. For the return that doesn't have the 1099, I just refer to the schedule. It's been working very well for me.
Mary Kay Foss
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Last Login: 7/16/2008 8:58:40 AM
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| I do something very similar to what Mary Kay does and it seems to work. I basically treat the surviving spouses portion of the administrative trust as a grantor trust and report their share of the items on their personal return as you would any grantor trust. The other side of the administrative trust would be treated pursuant to the trust document related to the deceased spouses wishes.
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One other point. I remember going to a CPE session where the instructor said that an adminstrative trust is a trust without a trust agreement. He went on to say that state law would allow/require distributions to the surviving spouse. To me that's support for John's approach. One half is a grantor trust for the survivor, the other half is an irrevocable trust with income flowing to the survivor.
Mary Kay Foss
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Last Login: 12/18/2008 8:19:53 PM
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Mary Kay, I'd like to debate the instructor on both counts.
If there is no provision for an administrative trust, I think you are dealing with the living trust in termination. It has a dual personality for tax purposes. Legally it does too, because the survivor usually has the power to revoke his or her community and separate property interests, but usually has no power over the decedent's community and separate property interests.
Most trusts provide that once the community property interests are determined, the separate and community interests of the decedent flow to one or more subtrusts, which may themselves have provisions for income to the survivor (or they may not). If so, I think the income flows to the subtrust(s), not the survivor.
Under Probate Code Section 15407(b), the trustee has the powers necessary to wind up the trust. I think this includes delaying distribution of the decedent's portion to take care of tax matters and assess liabilities. Does this mean it is not a simple trust for awhile after death?
John Jacobson
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