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MequonCPA
MequonCPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2342
Experience:  CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.
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A LIVING TRUST IS ACTIVATED UPON THE DEATH OF THE GRANTOR AND

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A LIVING TRUST IS ACTIVATED UPON THE DEATH OF THE GRANTOR AND BECOMES A TAXABLE ENITITY. AN ESTATE CAN CHOOSE A NON-CALENDAR YEAR END. WHAT ABOUT AN ACTIVATED LIVING TRUST? CAN IT CHOOSE A NON-CALENDAR YEAR END? THE IRS INSTRUCTIONS FOR FORM 1041 ON PAGE 8 UNDER ACCOUNTING PERIODS, SAY THAT GENERALLY TRUSTS CANNOT CHOOSE A FISCAL YEAR END, BUT IF A TRUST IS TREATED AS WHOLLY OWNED BY A GRANTOR UNDER THE RULES OF SECT 671 - 679 THEN IT IS OK. IS THIS REFERENCE TO A LIVING TRUST, EVEN AFTER IT HAS BECOME IRREVOCABLE BECAUSE OF THE DEATH OF THE GRANTOR?

DearCustomer-

 

If the trust is filing a separate return, the trust must file using a calendar year. The initial trust return year will begin with the date of death and continue through December 31st of that year.

 

With approval from the executors of the estate and the successor trustees of the trust, the trust can elect to have its income taxed to the estate during the election period. (See page 4 of the Form 1041 instructions "Special Rule for Revocable Trusts".) If the election is made all income and deductions of the trust are taxed to the estate. The estate does have the option to elect a fiscal year. To make this election the parties must use IRS Form 8855 (link below).

 

http://www.irs.gov/pub/irs-pdf/f8855.pdf

 

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