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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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I have a legal/accounting question for a Florida Estate execution.

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I have a legal/accounting question for a Florida Estate execution. There are no assets outside of Trusts (two trust exist), but both 2012 and 2013 personal taxes for deceased must be filed with the IRS in addition to the Trusts and Estate. One of the Trust has been an irrevocable Trust for years with an existing TIN. The other has just become irrevocable with the Grantor's death.
Do we need to file a separate SS-4 for both the newer irrevocable Trust and the Estate, or can this be accomplished all under the Estate TIN? Do the Estate Personal Representatives (there are three) all need to sign the SS-4 as "Responsible Parties" or can one PR alone apply, and in either case what are our liabilities with the IRS?
Do we also need to set up an Estate Checking account to pay all Estate claims, taxes, etc., or can that be done with funds from one of the Trust?
For additional information, one Trust holds liquid assets while the other holds deeded property which taxes will be due. Both Trusts and the Estate have the same Beneficiaries, but the Trusts have different Trustees.
Submitted: 12 months ago.
Category: Tax
Expert:  Lev replied 12 months ago.

Lev :

Hi and welcome to our site!
Your situation is relatively complex and I strongly advise to have a local CPA helping with the tax matters.
Do we need to file a separate SS-4 for both the newer irrevocable Trust and the Estate, or can this be accomplished all under the Estate TIN?


According to the IRS - for income tax purposes - two or more trusts are treated as one trust if the trusts have substantially the same grantor(s) and substantially the same primary beneficiary(ies) and a principal purpose of such trusts is avoidance of tax. This provision applies only to that portion of the trust that is attributable to contributions to corpus made after March 1, 1984.


In all other situations - trusts are separate legal entities - and must file separate income tax returns.
Do the Estate Personal Representatives (there are three) all need to sign the SS-4 as "Responsible Parties" or can one PR alone apply, and in either case what are our liabilities with the IRS?
The Estate Personal Representatives may apply for the tax ID for the estate. To apply for the tax ID for the trust - the form SS4 must be signed by the trustee (or succeeded trustee) named in trust's documents. If there are several trustees - only one trustee need to sign form SS4. Either of trustees may sign.
Do we also need to set up an Estate Checking account to pay all Estate claims, taxes, etc., or can that be done with funds from one of the Trust?
You are not required to set a separate account for the trust - that is for your convenient only. However - having a separate bank account would be a clear way to account for trust's income and expenses. I suggest to have a separate bank account and keep this account until all trust's assets are distributed and the trust is closed.

Customer:

Need to clarify your response to setting up an ESTATE Checking account. You referenced a checking account for a TRUST??? Not sure if I understand.

Customer:

Added information: The two Trust have different Grantors and also different Trustees. One Trust is Dad's, the other Mom's (the Trust were established in the 80's when the tax exemption for estates was low). Also the Trustee of Dad's Trust is one of the Beneficiaries solely, while Mom's Trust is all the Beneficiaries. All the Beneficiaries are also the Personal Representatives of the last survivor Grantor's Will.

Lev :

In this case - these are two separate trusts. Each trust should have separate EIN and file separate income tax return (form 1041).
You are not required to have the bank account for the trust - that is for your convenient only.
You may use your personal bank account or not to use any bank account for trust purposes.
If the trust is required to file - that woudl be based on filing requirements outlined in instruction - http://www.irs.gov/pub/irs-pdf/i1041.pdf
See page 4 - Who Must File
The fiduciary (or one of the joint fiduciaries) must file Form 1041 for a domestic trust taxable under section 641 that has:
1. Any taxable income for the tax year,
2. Gross income of $600 or more (regardless of taxable income), or
3. A beneficiary who is a nonresident alien.
Thus, for each trust separately we need to determine if it required to file on not.

Customer:

Mom's Trust is funded by only her homestead (mortgage free). I don't believe there will be any taxable income at all and no beneficiary is a nonresident alien. However, would there be any harm in obtaining a TIN even if we file a $0 tax return on form 1041????

Customer:

How would the estate sale for furnishings, other tangible property, etc. be handled for taxes? Part of the Trust which includes the home? Would the result net sales amount be considered income?

Lev :

However, would there be any harm in obtaining a TIN even if we file a $0 tax return on form 1041?
No harm. You may file the income tax return for the trust even otherwise it is not required.
In this case - be sure you will file the final tax return when the trust woudl be terminated and all assets eventually will be distributed to beneficiaries.

Lev :

How would the estate sale for furnishings, other tangible property, etc. be handled for taxes?
If these assets are owned by the trust - and proceeds are more than $600 - the trust would be required to file the income tax return even there is no taxable income.
The basis for inherited assets is their fair market at the time the decedent passed away. So I assume that they are sold at the FMV - and there gain/loss is zero.
So - yes - sale proceeds are included into trust's income, but there will not be any taxable income.

Expert:  Lev replied 11 months ago.
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Expert:  Lev replied 11 months ago.

However, would there be any harm in obtaining a TIN even if we file a $0 tax return on form 1041?
No harm. You may file the income tax return for the trust even otherwise it is not required.
In this case - be sure you will file the final tax return when the trust woudl be terminated and all assets eventually will be distributed to beneficiaries.

9/29/13 7:43 AM

How would the estate sale for furnishings, other tangible property, etc. be handled for taxes?
If these assets are owned by the trust - and proceeds are more than $600 - the trust would be required to file the income tax return even there is no taxable income.
The basis for inherited assets is their fair market at the time the decedent passed away. So I assume that they are sold at the FMV - and there gain/loss is zero.
So - yes - sale proceeds are included into trust's income, but there will not be any taxable income.

Customer: replied 11 months ago.

Reviewing your answers to refresh my memory. One point I'm not totally clear on is that you stated "According to the IRS - for income tax purposes - two or more trusts are treated as one trust if the trusts have substantially the same grantor(s) and substantially the same primary beneficiary(ies) and a principal purpose of such trusts is avoidance of tax.", which I believe is part of the SS4 instructions. These two trusts have different Grantors but they were husband and wife until death. Would that be considered substantially the same grantors? And since the Trust refers to the Will for distribution, would that mean the Beneficiaries are the same?

Expert:  Lev replied 11 months ago.
The statement is based on the following statute -
http://www.law.cornell.edu/uscode/text/26/643
(f) Treatment of multiple trusts
For purposes of this subchapter, under regulations prescribed by the Secretary, 2 or more trusts shall be treated as 1 trust if—
(1)such trusts have substantially the same grantor or grantors and substantially the same primary beneficiary or beneficiaries, and
(2)a principal purpose of such trusts is the avoidance of the tax imposed by this chapter.
For purposes of the preceding sentence, a husband and wife shall be treated as 1 person.

So - in your situations - because grantors were husband and wife - it is assumed that trusts have substantially the same grantor or grantors.

As see - the law doesn't require trusts to have same beneficiary - but requirements to be treated as the same trust is - having substantially the same PRIMARY beneficiary.
Customer: replied 11 months ago.

What if the two Trusts (Dad's and Mom's) have different Trustees (although Dad's sole Trustee is one of three Mom's Co-Trustees). Does that create a challenge? Is there any advantage to treat both Trust as one instead of getting another TIN for Mom's Trust (Dad's Trust became irrevocable years ago on his passing and has an existing TIN)?

Expert:  Lev replied 11 months ago.
Having different Trustees doesn't affect determination if you may treat these trust as ONE trust, but both trustees must agreed on such treatment.

There is no tax advantages of treating two trusts as one - but there might be potential saving on overhead.
Also - there is no fee to obtain EIN.
Customer: replied 11 months ago.

There would not be any savings in overhead (with the exception of preparing another 1041) by treating both Trusts as one since all three of Mom's Co-Trustees are the Beneficiaries as well. So it makes no difference if they each get equal $ being Co-Trustees or Beneficiaries.

Expert:  Lev replied 11 months ago.
If there is no substantial overhead saving and there is no tax saving - the issue makes no difference - I agree with you.
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22750
Experience: Taxes, Immigration, Labor Relations
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