joetaxpayer wrote:
....

- quote -

On top of which, by paying a higher marginal tax rate via the trust, the
beneficiaries just might have a valid complaint the Trustee is not
exercising proper fiduciary responsibility on their behalf.

If I were one (a beneficiary, that is) I'd certainly question this as
being a proper way in which to manage the Trust and ask for relief
(directly, first, indirectly if that became required although for the
size discussed probably would only make the noise; the other effort
probably not worth the loss other than "the principle of the thing").

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Noman wrote:
- quote -

I fear you may be making this far more complicated than it need be.
$10,000 in dividends will impact the 5 beneficiaries by $2000 each, and
a $300 tax due (or less depending on their bracket.) This sum is too low
to worry about estimated payments or quarterly taxes.
Page 2 of the 1041 instructions suggest "a trust or decedent's estate
sometimes is referred to as a "pass-through" entity. The beneficiary,
and not the trust or decedent's estate, pays income tax on his
distributive share of income."
I understand there may be an option for the trust to pay taxes at its
own rate, but what benefit is that? The trustee still must file the
1041, and a K-1 for the beneficiaries is hardly a burden.
JOE

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joetaxpayer wrote:
- quote -

This trust says "Mandatory income payments shall be made at least
annually.". My question is , is it a choice for the estate to pay the
tax instead of the beneficiaries? The quote I found in the archives
seems to say it's not an option, but I have read in at least one
reputable book that it may be. It is true that the estate will pay a
higher marginal tax than any of the beneficiaries.

The instructions for Form 1041 almost make it sound optional. "*If* the
trust claims an income distribution deduction, then attach schedule K-1
for each beneficiary". Can the trust simply not take the deduction, not
issue K-1, and pay the tax itself (whether or not this makes sense at
the tax rates involved). The income would still be distributed, just not
taxable to the beneficiaries.

- quote -

I read that a complex trust can make this choice of 65 days, but not a
simple trust. What I am thinking about is estimated taxes and
underpayment penalaties. The trust has been earning interest income
throughout the year, but no estimated tax payments were made. If the
annual share of money is paid to the beneficiaries, say, by Jan 15th
2008, is it treated as being received on the last day of 2007 for
underpayment purposes? I also read that the trust can make estimated
payments and transfer them to the beneficiaries, so would it be good to
do this by January 15th?

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Noman wrote:
- quote -

Elsewhere in this thread someone suggested the trust documents should
state whether distributions are mandatory or optional. You may not have
the choice. And if you do, why do you think the beneficiaries won't
care? $2000 is still a lot of money to some people.

Pull a copy of a blank 1041. Mine looks like this:
Income
Line 1 - Interest - $$
Line 2a - Ordinary Dividends $$
Line 2b - Qualified dividends $$
Line 4 - Cap gain/loss (need 1041 sch D) - $$
Line 9 - Total income - $$

Deductions
Line 18 - Income distribution deduction - $$ (this equals line 9)

A schedule K is attached reflecting the above numbers as income to the
beneficiary, along with a check for the line 18 total.

In your case, Sch K is duplicated 5 times and the numbers all 1/5 of the
amount (and you say you have only interest, so just that one number)

- quote -

A trust has a bit of time to distribute for prior year, I believe 2/28,
but not sure. The beneficiaries put it on their taxes for 2007 even
though they actually received the money in Jan/Feb 08.

It's not that complicated once you go through the process, and to save
ten minutes not doing the distribution is really throwing money away.
But again, you must review the trust docs. What is its purpose? When
does it end? These things should all be spelled out pretty clearly in
the docs.
www.blog.joetaxpayer.com

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

The following quote I found from this group's archives is pretty close
to my questions:

- quote -

I'm trying to research what a 1041 for a family member trust (died in
2007) would look like.

I've determined it is a simple trust for 2007 and there is about $10K of
interest income in 2007, with five equal beneficiaries.

Question 1: can the trust simply not take the income distributions
deduction and pay the tax at trust tax rates? Then there would be no
need to send K-1's to the beneficiaries? The tax rates look higher, but
the simplicity of distributing tax free money might make up for it.

Question 2: if the trustor died in 2007, then it is possible that trust
income required to be distirbuted annually has not actually been
distributed before year end. But if K-1's are issued to each
beneficiary and the income distribution deduction is taken on the 1041,
the beneficiaries might suddenly have a 2007 tax hit for cash they
didn't receive until early 2008. But, then I read that the trust can pay
estimated taxes and pass the estimated payments through to the
beneficiaries. Will this avoid any underpayment penalty for the
beneficiaries due to cash they got a 2007 K-1 for, but didn't physically
receive until 2008?

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >