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Last Login: 1/7/2009 12:13:53 PM
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| After all these years I finally have to do a final return for a bypass trust. Final trust returns require the distribution of capital gains to beneficiaries. Since we are sitting on overpayment from 2007 it would be simpler to just pay the tax on the capital gains at the trust level. Any precedent for doing so or will it come back to haunt me? Or since I am close to the end of the year, don't do a final for 2008 but a short year final in 2009? If I were to do it the right with a 2008 short year, would I be reporting all capital gains up to the date of death on the decedent's K-1 and those gains or losses after the date of death on the remainder beneficiaries K-1's. Secondly, most of the ordinary income was incurred before the date of death with most of the expenses incurred after that date. Can I commingle the income and expenses or do I have to give the decedent the income and the other beneficiaries the ordinary loss?
Steve Wojdowski
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Last Login: 1/6/2010 6:00:00 PM
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Did the trustee distribute all of the assets in 2008?
John Jacobson
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We held back about $25,000 for final expense, which was more than needed and still have about $15,000. We were keeping the account open for tax refunds.
Steve Wojdowski
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Take a look at Reg 641 (b)(3)(b). Do you feel that the last sentence applies to your client's situation?
John Jacobson
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Yes, the last sentence of the reg applies to my situation. So I will do a final short year return for 2008. As for the mechanics, now that I think about it, I believe all the capital gains for the whole year would be distributed to the remainderman since Mom was only an income beneficiary and the taxes paid in would also be distributed to them. Mom would get the ordinary income.
Steve Wojdowski
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Look at Reg. 1.652(c)-2 for help on preparing the K-1's for mom and/or her estate. Also, income received after her death passes to the remainder beneficiaries. Your trust accounting will make the calculations easier.
John Jacobson
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