This sounds like inheritance and the $176,633 is well under the revised unified credit. I assume this relates to 2011, as 2010 the inheritance tax was repealed for that year. However, be aware that inheritance of the amount you indicate and life insurnace in generally not taxable, but interest/dividends & other income on the principal inheritance or life insurance is taxable.
I believe that the inheiritance tax issue, yes, this is 2011, has already been handled by the decedents accountants and attorneys. My client is the recipient of a portion of the decedents estate from the decedents revocable trust into my clients succession trust which I now need to file a trust return for. Thank you for your confirmation regarding the interest and capital gains on the principal of the inheiritance, that is what I thought as well. Do I have to indicate the type of trust on page 1 of the 1041 and if so, any idea what type I would indicate that this one is or leave blank or do I need more information about the characteristics of the trust? Thanks again.
The trust you speak of is either a Simple or Complex trust as defined in the trust document.
1. If the Succession Trust distributes all income made every year but not any portion of the initial grant or corpus it is a simple trust.
2. If it holds some or all of the yearly earnings at the decision of the trustee or distributes a portion of the corpus, it is a complex trust.
This would be stated in the initial trust document and would generally remain in the same status year after year unless some change was made to the trust.
What concerns me is that you state the trust owes tax so it is not passing the gain to the owners to report on their 1040 which a simple trust will generally do. This is the only information given that would lead to one over the other that being a Complex trust.