Tax

Have a tax question? Ask a tax Expert

Ask an Expert,
Get an Answer ASAP!

A complex trust was created with life insurance proceeds…

Customer Question
A complex trust was created...
A complex trust was created with life insurance proceeds from the death of a father with 3 daughters who are the beneficiaries of the trust. Income does not have to be paid but income & principal can be paid to care for them. They get half of their portion of the trust at 25 and the other half at 30. I've been treating the trust as having separate shares. Two daughters have already turned 30, so now only one daughter remains as a beneficiary. There is a big capital loss carryover. Does the remaining daughter get the entire capital loss carryforward in the year of termination under 642(h)(1)? The alternatives would be to create K-1's for all 3 beneficiaries in the final year with each reporting 1/3 of the carryover or maybe I should have put it on their K-1's when they turned 30. Thoughts?
Submitted: 30 days ago.Category: Tax
Show More
Show Less
Ask Your Own Tax Question
Customer reply replied 30 days ago
FYI - The losses came from an investment account. The distributions have only been made with cash.
Answered in 2 hours by:
3/23/2018
Tax Professional: Dr. Fiona Chen, Certified Public Accountant (CPA) replied 30 days ago
Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 933
Experience: Former IRS Revenue Agent
Verified

I'm Fiona, former IRS revenue agent. I am looking at your question and will get back to you soon. Fiona Chen, MPA, Ph.D., CPA, ABV, CFF, CITP,IMTA

Ask Your Own Tax Question
Tax Professional: Dr. Fiona Chen, Certified Public Accountant (CPA) replied 30 days ago

Dear Customer,

The life insurance proceeds should not be an issue because it is a tax free item.

The only question I am reading is how to handle the trust investment capital losses and its flow through to the three beneficiaries.

Below is a suggestion.

First, terminate the main trust with the two beneficiaries and create one trust with one beneficiary which is a new trust to receive the gain and loss. This new trust is the one for and with the third beneficiary.

That is, the trust will distribute the 1/3 of losses to the two beneficiaries individually. Everyone will receive a last K-1. The third beneficiary's portion is flow to his/her new trust.

For the third beneficiary, a trust is created with all same regulations and rules as the existing trust, and just with a different EIN on this beneficiary's remaining trust amounts only. This is to handle the tax treatment and not to change any of the trust provisions.

This is a more fare method to handle the loss. Otherwise, year after year, the third beneficiary could use up the losses and eventually, by the time, the trust is closed, this beneficiary will likely use up the portion of other beneficiary's losses.

Make sure that tax return preparer works well with trustee and the attorneys. Everyone knows that the purpose of terminate the first EIN number is ***** terminate the first two beneficiaries and distribute their losses. The second trust is just for the third beneficiary with its own EIN.

How much paper work and documents you need to go through depends on the amount of money and losses remaining in this trust and family relationships.

Please feel free to follow up.

Regards,

Fiona

Ask Your Own Tax Question
Customer reply replied 30 days ago
I think you misunderstood my question. This trust is 15 years old, I've been filing 1041's every year, I've treated it as having 3 separate shares for DNI purposes in years that had distributions, and now I'm down to the last beneficiary who turns 30 soon. That will be the final year of the trust. There is a big capital loss carryover that I can flow through to 1 or more of the beneficiaries. It seems like the last beneficiary may get the entire $100,000 capital loss carryover, which isn't really fair because all 3 beneficiaries got hit economically with the loss because it occurred before any of them had turned 25. The statute says that the carryover goes "to the beneficiaries succeeding to the property of the estate or trust". All 3 of them received the principal of the trust at different times, which would lead me to believe that it should be split up between them, but it can't flow through until the termination year when I only have one beneficiary left.
Was this answer helpful?
Ask Dr. Fiona Chen Your Own Question
Dr. Fiona Chen
Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 933
933 Satisfied Customers
Experience: Former IRS Revenue Agent

Dr. Fiona Chen is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,338 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,451 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

PhillipsEsq.

PhillipsEsq.

Attorney-at-Law

56 satisfied customers

B.A., M.B.A, J.D.

Robin D.

Robin D.

Senior Tax Advisor 4

15,124 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,655 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

< Previous | Next >

Related Tax Questions
I'm preparing someone's tax return that needs to be mailed.
I'm preparing someone's tax return that needs to be mailed. They're out of the country. Can they e-sign and I mail it? I know they can e-sign e-filed returns, but not sure about paper returns.… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
If I report the distribution listed on K1 line 19A, the
If I report the distribution listed on K1 line 19A, the software adds the difference between net rental income and the amount distributed and taxes the difference. So, do I need to enter the amount on… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Finally filing 2016 income tax returns. Filing as "married
Finally filing 2016 income tax returns. Filing as "married filing separate return". Did not live with spouse at all in 2016. What is she on my return: an exemption? a dependent? an alimony expense onl… read more
abci168
abci168
Principal
27 satisfied customers
How is land from an estate reported on a beneficiaries K-1
how is land from an estate reported on a beneficiaries K-1 … read more
Dr Arthur Rubin
Dr Arthur Rubin
Doctoral Degree
24 satisfied customers
IRS For a 1041 return, a 1042S has already been filed for a
IRS For a 1041 return, a 1042S has already been filed for a foreign beneficiary. Do they need the K-1 for their return since tax has been paid? They live in Chile. Thanks!… read more
Dr. Fiona Chen
Dr. Fiona Chen
Certified Public Accountant (CPA)
933 satisfied customers
According to irs regulations, wages paid after an employee
according to irs regulations, wages paid after an employee dies are not subject to federal withholding.. please send me copy of that. regulation … read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
2,066 satisfied customers
Are beneficiaries required to report K-1 credits on the Form
Are beneficiaries required to report K-1 credits on the Form 1040, or is at our discretion? I'm using TAXACT software. The Form 1041 K-1 Final Year Deductions only shows credits on Line 11 A and C. Th… read more
PDtax
PDtax
Owner
Master\u0027s Degree
1 satisfied customers
Does 1250 depreciation recapture rules apply if a property
Does 1250 depreciation recapture rules apply if a property is sold at a loss AND depreciation was not taken on the property. The difference between the adjusted basis (had depreciation been taken) and… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
On what lines do you report the final distribution of the
On what lines do you report the final distribution of the principal, no income, (K-1) as a trust beneficiary?… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I prepared a c-corp trucking company income tax return for
I prepared a c-corp trucking company income tax return for 2015 and 2016 They paid their employee drivers per diem for days away All the records are good but the IRS says I should have only deducted 8… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Do I report (in kind) stock transfers to beneficiaries of a
do I report (in kind) stock transfers to beneficiaries of a residuary trust as it closes out in 2017? Stock transfers took place late last year and assumed date of death basis. remaining fractional sh… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I have prepared the Form 8949 reporting the sale of a
I have prepared the Form 8949 reporting the sale of a estate's fractional interest in a house, the other fractional owners are the residual beneficiaries. Sales proceeds minus the (stepped up basis pl… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
When I filed my 2016 tax return, the tax preparer used a
When I filed my 2016 tax return, the tax preparer used a form 4797 because in 2015 I sold a rental property. This was the only property I owned. I am retired & my annual income is a little over $20,00… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
15,124 satisfied customers
How do I CONTACT IRS TO REPORT A IRS RETURN WITH MISTAKES
how do I CONTACT IRS TO REPORT A IRS RETURN WITH MISTAKES 2016 … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
15,124 satisfied customers
Lane, Here is the situation: a QTIP has capital loss
Lane, Here is the situation: a QTIP has capital loss carryfwds. the QTIP terminated in 2017 due to the death of the beneficiary. As I understand, the QTIP assets become assets of the beneficary's esta… read more
taxmanrog
taxmanrog
Master\u0027s Degree
904 satisfied customers
A CPA prepared a filed a personal return last april. There
A CPA prepared a filed a personal return last april. There was a NYS and NYC refund due. The check never was received. The CPA is not helping procure a replacement check, whom should the person call o… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
What are the forms for reporting Rental Income to the IRS on
What are the forms for reporting Rental Income to the IRS on foreign properties - we collect each month? Is this filed separately from our personal returns?… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
2,066 satisfied customers
Can I report rental income in my tax return on a property
Can I report rental income in my tax return on a property thar is owned by my father? He does not live in the US is not a US citizen and can sign a document to allow me to receive the rental… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
15,124 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x