Avrum Lapin <avrum223[at]verizon.net> wrote:
- quote -

The capital gain would have been minimal at best, since, as community
property, the entire property got a stepped up basis on the husband's
death. But if there had been a large capital gain, it seems to me the
tax problem would have been the other way, because the surviving spouse
would have gotten the $250,000 exclusion while the trust wouldn't.

- quote -

Thanks. While I do a lot of work regarding taxes, I don't do returns,
so I can't say it would be obvious to me, but I suppose that's the only
thing I can do.

Stu

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In article <Xns9A928D5BA67E5avocatstuyahoofr[at]130.133.1.4> ,
Stuart Bronstein <spamtrap[at]lexregia.com> wrote:

- quote -

I'd look at the sale of the home and any capital gains associated with
it.

Look at whether both sets of calculations treated any step up in value
or "home owner's capital gain exemption" the same way.

If you place the two sets of returns side by side it should become
obvious (but then again this is income tax and nothing is obvious)

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"HW \"Skip\" Weldon" <skip5700removethis[at]hotmail.com> wrote:
- quote -

I was afraid you'd say that. I guess I just need to look at the actual
returns and see if I can figure it out.

Thanks.

Stu

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On Sat, 3 May 2008 08:36:21 EDT, joetaxpayer <joetaxpayer[at]nospam.comwrote:


- quote -

Agree. Barring further information, my answer is that the difference
in taxation is a SNAFU by the preparer.


-HW "Skip" Weldon
Columbia, SC

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Stuart Bronstein wrote:
- quote -

Well, the income comes through a K-1 which then gets taxed as if the
recipient had their own dividends, cap gain etc. I agree with you there.

Funny thing is this, we're not just discussing a point of fact (that the
recipient's tax should be lower than the trust paying the tax, and that
it's a pass through, same as if recipient received directly), we are
trying to guess what mistakes the tax preparer made. That's a bit
tougher, no?

Joe
www.blog.joetaxpayer.com

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joetaxpayer <joetaxpayer[at]nospam.com> wrote:
- quote -

That's what I figured, too.

By the way, I don't think the trust tax rates should have anything to
do with it, because all income would be treated as distributed, so
fully deductible to the trust and includible in the income of the
surviving spouse.

Stu

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Stuart Bronstein wrote:

- quote -

You can see from 1041 instructions that trust rates are far higher than
individual rates. I can't imagine how there would be a situation with
more than a trivial amount of money that would have a different result.
Joe
www.blog.joetaxpayer.com

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Mark Bole <makbo[at]pacbell.net> wrote:
- quote -

Like a typical survivor's trust it's a revocable, grantor trust. She
is directly taxed on all the income from it.

She's also taxed on the income from the decedent's trust, because she
receives it. But the tax preparer tells me that if that income is
attributed to the irrevocable trust and counted as a distribution to
her, the tax is much lower.

- quote -

It should all be pass-through. And the surprising thing is that I am
told that the tax is higher if it doesn't go through the trust, and
lower if it does.

- quote -

The thing is that the income is exactly the same, it all goes to her
and gets taxed to her. So I don't understand why there's be such a
big difference.

Stu

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Stuart Bronstein wrote:
- quote -

....and assuming that the income from the rental property came from the
survivor's trust? What type of trust is that?


- quote -

Something is being taxed at trust rates, rather than individual rates
after a pass-through? You've made it clear we're only talking income
tax here...


- quote -

Sorry, all I'm offering is more questions instead of answers. But to
answer the last question, Q: what can be done? -- A: don't compare
taxes from a set of returns where the properties are backwards!

-Mark Bole

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I have a client whose husband died at the end of 2004. Their property
was divided between the survivor's trust and the decedent's trust.

In the survivor's trust was the home they lived in, and rental property
was in the other trust. The remainder interest in the home was then
sold for fair market value (the woman will live there for the rest of
her life). Those funds were used to purchase annuities, the income of
which is primarily used for medical bills, home care, etc.

The decedent's trust distributes to the surviving spouse all the trust
income. The new tax preparer got the properties backwards, and
originally did the taxes assuming the income from the annuities came
from the decedent's trust. When she re-did the returns with the money
coming from the right trust, she found the income tax was about $20,000
higher, on income of $90,000.

Does this make sense? Why would this be happenning? And can you think
of anything that can be done about it?

Thanks for your help and insights.

Stu

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