Stuart A. Bronstein <spamtrap[at]lexregia.com> wrote:
- quote -

They certainly _can_. But I have no idea why they're
fighting; if they hate each other and want the other one(s)
to get *nothing* they certainly *won't* agree. Even if
they're just greedy, someone might feel that 90% less trust
taxes of 35% is better than 50% less his tax rate.

Seth

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sethb[at]panix.com (Seth Breidbart) wrote:
- quote -

But they all at least claim to be current beneficiaries. So
I don't see why they can't agree to share the income
pro-rata for tax purposes. The trust would issue 1099s and
the trust would disburse enough money to pay for the taxes -
likely less than if the trust paid its own taxes.

Stu

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

- quote -

But until the case is resolved, nobody knows whether party A
gets 90% or 10% (or 0%) of the trust/income.

Seth

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"njtaxguy" <grbond[at]optonline.net> wrote:
- quote -

I agree with Stuart - how does this help?

If possible, find a baseline amount that all parties agree
should be distributed, and distribute that to the
beneficiaries at their presumably lower rates. Keep the
disputed amounts in the estate for final disposition, even
though the estate will presumably have a higher tax rate.

And, I suppose, get the litigation over with as soon as
possible, and within the time period for filing amended tax
returns. But that raises another question:

If an amended tax return is filed, can the income from a
previous tax year be considered to have been distributed in
that prior tax year? And, if so, the recipient(s) will have
to file amended returns as well, and so will they be
penalized for not fully paying their taxes by the due date?
If so, the higher tax rate of the estate would seem to be
lower than the beneficiaries' tax rates plus penalties and
interest.

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"njtaxguy" <grbond[at]optonline.net> wrote:

- quote -

That's what it sounds like to me. But I doubt it will give
you any benefit.

What might be better would for all the beneficiaries to
agree that they will individually recognize the income (the
trust can send them 1099's), and that the trust will
disburse to them sufficient funds to pay the tax until the
case is finally resolved.

Stu

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sethb[at]panix.com (Seth Breidbart) wrote:
- quote -

Estates and trusts have he same marginal tax brackets. The
highest rate, 39.6%, kicks in at $7500.

Stu

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s...[at]panix.com (Seth Breidbart) wrote:
- quote -

Thanks for your response.
As I understand you suggestion - The administrator would
establish the trust funded with the undistributed income and
wait for the court decision.

The 'final' distribution would be from the trust per the
court's allocation.

Is this correct?

Gordon

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njtaxguy <grbond[at]optonline.net> wrote:

- quote -

Would it make sense to set up a separate trust, which gets
the income that should be distributed to the beneficiaries
and holds it until the court rules on who the benficiaries
are?

Seth

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I have a client who is the administrator of an estate that
is in litigation between the beneficiaries. The
administrator is under a court order to pay only expenses
and distribute nothing to the beneficiaries until the matter
is resolved. The income to the estate is significant and
results in a higher tax rate than the beneficiaries are
likely to pay had the income been distributed. I have not
encountered this situation before and seeking input from the
group on the proper handling of the Form 1041. The IRS
Specialty Tax Hotline admitted that this situation was
beyond their scope in providing guidance.

It seems to me that some of the possiblities are:

1 - Report all the income and expenses and pay the higher
rate and somehow file amended returns for the estate fiscal
years affected or, when the litigation is settled, file a
claim for refund of prior year tax payments.

2 - Report only the portion of income used to pay expenses
and the associated expenses, and include an explanatory note
along with a copy of the court order.

3 - Report all income and expenses and include an expense for the
amounts that would have
been distributed but for the court order, and then file amended
return or report income when
the litigation is resolved.

I would appreciate any suggestions or benefit of any experience others
may have had in a
similar situation. Thanks.

Gordon Bond

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