Nan, EA in LA wrote:

- quote -

If I understand this properly, this was a "living/bypass
trust" which for purposes of the IRC is a GRANTOR trust. As
it became irrevocable when he died, but as the surviving
spouse was the sole [current] beneficiary, I see this as an
election under TR1.671-4 (I think that's the correct one)
not to file a 1041 but to file a consolidated 1040 - so I
don't see a problem. I don't believe that interferes with
excluding the "bypass trust" part of the combined estate
from the second decedent's 706. Its SOLE purpose is to
avoid the necessity of probate. However, I've never had to
defend that in an audit.

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Nan, EA in LA wrote:

- quote -

snip

- quote -

I'm no attorney, but it seems to me that the latter fact is
controlling, REGARDLESS of whether trust tax returns were
file. However, if you do decide to file a 1041, DON'T make
it look like a "grantor trust" (as the attorney has
suggested). I think that ~could~ be viewed as drawing the
properties back into the decedent's estate.

I would probably leave the situation "as is" (no 1041
filing). Or, I would prepare the 1041 with all of the
relevant data and pass thru the income on a K-1.

MTW

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"Nan, EA in LA" <naneklund[at]aol.com> wrote:

- quote -

My guess is that there should have been an allocation
between a marital trust and a bypass trust when the husband
died.

- quote -

One thing that might be done is to go back to the date of
husband's death and make the allocation between the two
trusts. Perhaps you could then allocate her personal home
to the bypass trust and the rental home allocated to the
marital trust. In that way no return would have been
required for the bypass trust (no taxable income), and all
income from the marital trust would be reportable by her
personally and not by the grantor trust.

- quote -

Yeah, sometimes lawyers are idiots.

Stu

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Client died March 30,2005. Her heirs and attorney want me
to file a 1041 for 2004 to establish that her rental and her
personal home are in a trust and should have been reported
via a trust since her husband died 10 years ago.
(Naturally, she never discussed this with me.) Seems it was
set up to keep the value of the rental out of her estate,
which will be under 2.5 million without the property but
over 3.5 million with it.

The trust does exist. It does hold title to her real estate
and obviously should have been filed all along. Any
suggestions for making this sound normal and reasonable?
Include all the data about the rental or just say (as the
attorney suggested) that "all has been claimed on her
personal 1040", which is true, but sounds fishy..... Nan, EA
in LA

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