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Jax Tax
Jax Tax, Tax Attorney
Category: Tax
Satisfied Customers: 1408
Experience:  JD, LL.M in Business and Taxation, IRS Enrolled Agent. Expert in Business and Tax Transactions
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A client has asked me to prepare a trust return for his "Succession

Customer Question

A client has asked me to prepare a trust return for his "Succession Trust." The trust has received a Final K-1 from a Revocable Trust with $599 in box 11 with a code of "A." The only other tax document received was a 1099 from a Scottrade investment account in the name of the trust and with the trust's tax ID number. It shows $122.94 in interest and $176,632.97 in Gross Proceeds which results in $2,262.17 in short term capital gains. I am not sure which boxes to check in section A of the front of form 1041. The trust which this one (Succession Trust) comes from (Revocable Trust a K-1 was received from) was a decedent relative who left money to my client through their revocable trust into my clients succession trust. I am just "getting ny feet wet" with Trust returns and this seems like a fairly simple one. I am showing the interest and capital gains as income and the $599 less the 2% floor as a deduction and have come up with $276 in tax owed. Am I missing anything or is their anything I should look out for or further inquire about? Thank you.
Submitted: 5 years ago.
Category: Tax
Expert:  JACUSTOMER-TaxGuy replied 5 years ago.


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 I assume this relates to 2011, as 2010 the inheritance tax was repealed for that year.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.

Expert:  Jax Tax replied 5 years ago.

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.

Jax Tax, Tax Attorney
Category: Tax
Satisfied Customers: 1408
Experience: JD, LL.M in Business and Taxation, IRS Enrolled Agent. Expert in Business and Tax Transactions
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Expert:  William Ellis, CPA replied 5 years ago.
Hello and thank you for allowing us at Just Answer to assist you. I realize Jax's answer has already been accepted, so count this as an assist. It would be worth your time to either buy a tax program or take the information to a tax preparer. Form 1041s can be complex, but most programs handle these issues well. You would simply enter the K-1 in the appropriate section for income arising from trusts and estates. The ScottTrade information would be entered as interest and as a capital gain. The trust may or may not have taxes to pay depending upon its design.