"D. Stussy" <kd6lvw[at]bde-arc.ampr.org> wrote:
- quote -

Actually, if the trustee has the power to distribute the
corpus to himself, section 678 requires him to recognize
income on those assets.

Stu

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

"Michael T Wing CPA" <mtwingcpa[at]yahoo.com> wrote:
- quote -

Exactly. A trust is a living trust if the grantor is alive
when it's set up. That's the only requirement. If it's not
a living trust it's a testementary trust, set up in the
person's Will.

- quote -

practical, but it would certainly be nice if any trust set
up for estate planning purposes could be terminated and the
assets distributed as quickly as possible after the
grantor's death.

- quote -

I agree. But in this case you used a legal term with a
specific legal definition, but in a colloquial way. So it
set off an alarm for me because, from a technical
standpoint, the statement was only partially correct.

Stu

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

"Michael T Wing CPA" <mtwingcpa[at]yahoo.com> wrote:
- quote -


- quote -

Generally when there is a trust there is no official
probate, so no executor is appointed by a court, though one
may be named in a will. In these situations the
responsibility for payment of debts, taxes, etc., rests with
the trust.

- quote -

Excellent approach. Are you sure you don't want to practice
law?

By the way, this can also be done in probates (at least here
in California). But it's seldom done because the
bureaucracy required for a pre-termination distribution from
a probate can be significant.

Stu

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Stuart O. Bronstein wrote:
- quote -

Yes. Also, if there's only one beneficiary, the post-death
part may be combined onto the beneficiary's return for the
amounts covered by the LT (assuming one can't take advantage
of the $600 exemption somehow or some other reason compels).

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Martha Matthews, EA wrote:
- quote -

I don't think I said that this was without problems or that
the trust always covers 100%. The above isn't a problem if
the beneficiary (usually a relative) is also the executor as
I alluded to above; he's responsible regardless.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Martha Matthews, EA wrote:
- quote -

That may be true, but post-death, if the irrevocable trust
has only one beneficiary, combined filing (with that
beneficiary) is still [electively] permitted under some
provision in IRC 671-679 (I forget exactly which one, but
want to say 678).

I've done that myself and those issues (otherwise
flow-through if a separate return were filed) were
explicitly examined and survived the audit unchanged.

Note that I didn't say that it is all combined onto the
decedent's return. You assumed that.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Michael T Wing CPA" <mtwingcpa[at]yahoo.com> wrote:

- quote -

Except that many "living trusts" are created with all of the
assets of the decedent, leaving no assets to be administered
by an executor.

In that case, most states will find that the trust is liable
for the debts of the decedent, and that the trustee may be
personally liable for debts if the trustee distributes the
trust without regard to the rights of debtors.

Section 505 of the Uniform Trust Code confirms that the
assets of a revocable trust are subject to the claims of
creditors of the grantor, but does not specify when (if
ever) the trustee might be personally liable to those
creditors following distribution.

**Dan Evans
**I post information, not advice.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Guy Scharf <guy[at]spamcop.net> wrote:
- quote -

Well, you can legally. From a practical standpoint,
however, it will be very difficult to get money back from
beneficiaries to pay those expenses. The trustee might be
able to be held personally liable for trust expenses if the
beneficiaries don't pay, so be careful.

Stu

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

"Martha Matthews, EA" <mtsm1v[at]earthlink.net> wrote:
- quote -

I think what he meant was that the income is combined up to
the date of death, and that the trust will earn so little
income before its assets are distributed after death that no
return will be required.

If so, that is accurate though usually unrealistic.

Stu

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Stuart O. Bronstein <spamtrap[at]lexregia.com> wrote:

- quote -

I suppose that just about any trust set up in the grantor's
lifetime could be referred to as "living" trust for some
purpose, especially if there is some attribute of retained
discretion or control. However, I think it was pretty clear
from the original post, and from what is normally discussed
in this particular newsgroup, that "living trust" refers
rather narrowly to a "revocable living trust" (or whatever
the proper term might be) that is typically set up as an
alternative (in whole or in part) to a will. My remarks are
confined to that type of trust. <g
- quote -

Perhaps it is worth noting that the trust described in the
original post called for the distribution of the assets
"forthwith." <g
I obviously don't claim to practice law. However, I do
"observe" things and I see no harm in "sharing" such
observations. As one of our other posters notes in his sig
line, "I provide INFORMATION, not ADVICE."

MTW

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Guy Scharf <guy[at]spamcop.net> wrote:

- quote -

First, I don't want to be accused of "practicing law" here. <g
But, my understanding is that the responsibility for paying
final bills, etc., rests with the executor of the estate,
NOT with the trustee. Obviously, in many cases the executor
and the trustee are the same person. And, the trust will
likely state that the trustee should furnish whatever funds
the executor may need from the trust to discharge those
obligations. Naturally, I haven't seen your trust documents,
but what I have described is what I would normally expect.
Actual cases, of course, may differ.

If I were in your situation as the trustee, based on the
limited information you've given, I would probably
"estimate" the amount of final expenses, hold a "reserve"
sufficient to cover it, and then proceed to distribute the
other assets. Once distributed, the practical consequence is
that you will not likely be able to get the money back.

On of the risks involved in using an RLT that doesn't go
through probate (or a similar "debt resolution" procedure)
is that you might over-distribute and therefore not have
sufficient funds left to pay the bills. An RLT doesn't
guarantee that you will never have any problems. It does,
however, provide certain opportunities. Ease and speed of
distribution are among these.

MTW

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

"Michael T Wing CPA" <mtwingcpa[at]yahoo.com> wrote:

- quote -

While that is certainly what I would like to do, I think
I need to handle medical bills from the final illness.
I know that in this case the typical billing/insurance
cycle takes more than two months, and probably longer at
the holiday season. If I could pass responsibility for
those bills on to the beneficiary, then I could distribute
all the assets. Can I do that?

Guy

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

"Michael T Wing CPA" <mtwingcpa[at]yahoo.com> wrote:
- quote -

You're thinking of a specific type of trust, an intervivos
revocable trust. And while that is certainly the general
rule, it's not universally true, or even always recommended.

Also there are other types of living trust for which this is
not true. A Crummey (insurance) trust is a living trust. A
minor's trust is a living trust. A special needs trust can
be a living trust.

- quote -

planning purposes, what they are saying is reflected in the
terms of the trust. Fast and cheap may be a goal. But it
may not.

- quote -

That's where the biggest misunderstanding comes from. A
trust can do much, much more than a will, unless the will
contains a testementary trust. In which case you are back
where you started with the addition of probate.

Sometimes a gift is intended to be delayed - for example a
gift to a child for educational purposes. Yes, a separate
trust can be created for that purpose, but it's not
necessary.

- quote -

It's true that you can accomplish most of the same things a
trust does, other ways. For example probate can be avoided
by using joint tenancy. Estate tax savings can be optimized
by having the first spouse to die leave their property
directly to their children and bypass the other spouse.

However each method has drawbacks and creates other
problems. A trust is the only thing to accomplish all the
goals without creating others.

As I've said here frequently, I don't do returns. And you
should avoid practicing law.

Stu

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

"D. Stussy" <kd6lvw[at]bde-arc.ampr.org> wrote in

- quote -

As of the date of death the "living trust" is no longer a
grantor trust. It becomes an irrevocable trust and a
separate tax payer. While you may not get audited by
combining all income on the final 1040 it is not correct and
I don't recommend it.

Martha S. Matthews, EA

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

"D. Stussy" <kd6lvw[at]bde-arc.ampr.org> wrote:
- quote -

So, as trustee, who are you going to trust to return money
that may be due for debts and expenses, not to mention
estate tax that may be due? If the benes don't chip in, it
could be your responsibility?

Martha Matthews, EA

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

"D. Stussy" <kd6lvw[at]bde-arc.ampr.org> wrote:
- quote -

I agree that in some situations a tax return may not actually be
due.

But there are different kinds of trusts, and they are used
for different purposes. When a single person with a
testementary trust dies, a goal would be go distribute trust
corpus and close the trust as quicly as possible. But in
other situations that may not be the goal.

In addition, a trust has obligations that may prevent
immediate distribution. It has to make sure creditors are
paid. It has to make sure estate taxes are paid. And it
has to make sure that any taxes from a final income tax
return are paid. If trust corpus is distributed immediately
you'd have to go back to the heirs and ask them please to
give back some of what they received so these payments could
be made. Not likely to be a simple process.

Stu

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Stuart O. Bronstein <spamtrap[at]lexregia.com> wrote:

- quote -

In my view a "living trust" is simply a "dispository
document," like a will. It might in turn create OTHER trusts
and/or earmark certain portions to REMAIN in trust, but the
basic document itself is not intended (in my opinion) to
last any longer than necessary to facilitate the
distribution of the assets in question.

All situations I've seen where the distribution of assets
from an RLT were delayed have resulted in additional
administrative costs/hassles and additional tax filings that
wouldn't have otherwise been necessary. In my view, when a
person sets up an RLT, they are saying, "I want my estate to
be handled fast and cheap." (Maybe not those words
exactly... <g> ) Those who introduce "delay" into the
equation are "disrespecting the dead" in my opinion. <g
If the administration of a living trust becomes as difficult
and time consuming as a probate procedure (and I've see that
happen), then I would join with those who say that a living
trust is simply an unnecessary and potentially expensive
rip-off. After all, it doesn't accomplish anything that
can't also be accomplished via a similarly drafted will.
Really, the ~only~ advantages it provides are speed and
confidentiality. "Blow" either of those and you've blown the
deal. <g
MTW

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

- quote -

Clarification: The losses can be applied to the final
lifetime 1040, but not to the 1041 of the estate or trust,
and not to the 1040s of the beneficiaries.

**Dan Evans
**I post information, not advice.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Stuart O. Bronstein wrote:
- quote -

I disagree: Although generally true, for what period are we
talking? A properly structured trust will immediately
distribute upon death, so the trust is "split" for reporting
purposes between the decedent and the survivor. Unless
something extraordinary happens in the one or two days that
this occurs over, the estate exemption of $600 will usually
kill any income event and not cause a required filing.
[Perhaps this is only true where the survivor beneficiary
also happens to be the executor....]

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Guy Scharf wrote:

- quote -

That "living trust" is a grantor trust. Combined is acceptable.

- quote -

There is a revenue ruling on this issue that says NO (from
1976?). A capital loss dies with the decedent. A grantor
trust is disregarded for this purpose.

A loss by an estate or trust (for income tax purposes) may
be transferred if it can be structured as an excess
deduction on termination (IRC 642(h)). However, the estate
or trust does NOT pick up the decedent's carryforward from
the decedent. Therefore, it is for losses starting with the
time after death.

- quote -

And from probate too.

- quote -

"As soon as possible." "Without delay." (use a dictionary)

- quote -

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->