2/17 /2015
Enrolled Agents Meeting February 2015 Joel A. Bernstein Attorney at Law 33 Bedford Street, Suite 13 Lexington, MA 02420 781 863-8606 www.jbernsteinlaw.com Email:
[email protected]
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2/17 /2015
Your speaker Estates and trusts 15 minutes of fame Loring and Rounds: A Trustee's Handbook 2000+ trusts and wills Post death administration Annual communication Website: www.jbernsteinlaw.com
Student • 45 minutes early a.m.
• Black cup of coffee (or 2) • Federal Income Taxation ofEstatesJ Trusts & Beneficiaries - CCH Ferguson, Freeland and Ascher
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2/17 /2015
Attachments Administrative Trust excerpt from Loring and Rounds 2. David Gaw (CA) excerpt - Discuss Income Tax Issues 3. FAQs on Grantor Trust Tax Reporting 4. IRS GTR project 1.
Whiteboard
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2/17 /2015
Five parts 1.
$2 million couple $1 million up
Gifting in MA Grantor trust reporting Pesky Trust EIN issue 5. What type of trust given to EA? 2. 3. 4.
Part 1: Joe and Mary- $2 million assets
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2/17 /2015
Couple with $2 million POST death scenarios: 1. 2. 3. 4.
No will or trust. Mary dies. Joe and Mary have revocable trusts. Mary dies. No will or trust. Medicaid?. Each have revocable trust. Medicaid?
Q: What are income tax and estate return issues?
Joe and Mary: Estate planning discussion •
Wills Discuss: how assets are owned? A Will make a difference?
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Do nothing? But ... Durable power of attorney, Health care proxy, MOLST
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Revocable trusts 'Nursing home?' • •
Give assets away/irrevocable trust Will with testamentary trust
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2/17 /2015
Case 1: No will or trust, Mary dies How are the assets owned? Intestate - newer MUPC All to spouse - except if non-joint children • Joint • IRA • Life insurance Last return (1040) of couple Estate (1041) IF sole assets of deceased (Probate estate) • Gross income of probate estate over $600 • Taxable income of probate estate (after personal exemption)
Final return of decedent •
• •
"Death adds new dimensions to many of the usual problems in preparing an individual's tax return." Ferguson, Freeland and Ascher Shorter period of time - unmatched income/expenses By whom is the item reportable? • • • •
Decedent? Estate? Trust? Ultimate transferee?
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2/17/2015
Maybe no estate at all All joint or beneficiary designation • But Mary died with some sole assets • F,F,A: File even if income de minimis • Statute of limitations - 3 year • Personal liability of PR - 1 year after assessment time of decedent • If no PR or trustee: Inadvertent executor
Where to file final return • District of PR, even if different from decedent's residence • "Mary, deceased" on top, with Mary SS# • Sign with fiduciary capacity or other relationship • JOINT RETURN: With Joe •
IF divorce was not final
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2/17 /2015
Income includable on final return Only income decedent realized before death • Actually or constructively • Doctrines: claim of right, cash equivalence, constructive Accrual decedent: Familiar 'all events' test If not realized, then IRD taxable to ultimate recipient (IRC 691)
Estate 1041 Income from death forward Probate estate • Gross income of probate estate over $600 • Taxable income of probate estate (after personal exemption) • $600 personal exemption
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2/17 /2015
706? $5,340,000 -> $5,430,000 • Increases each year
M706: $ 1 Million (Massachusetts) Thick - copies of will, trusts of Mary and] oe Snapshot of assets and liabilities at death
IF Mary died with $800,000 NoMAM706
• If died with $1.4 Million - yes, M706
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2/17 /2015
IF Mary had $1.4 million ALL to spouse M706 attached U.S. 706 (July 1999) Marital deduction makes no tax due But all bunches into Joe's name MA estate tax when Joe dies
At Mary's death FormM.706 Masi;aetmietts Estate TaX Re!um
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Though no MA estate tax, ALL in name of Joe When Joe dies, $2 million in his name, tax of $99,000
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2/17 /2015
Case 2: Revocable trusts, Mary dies. Usually bypass trust within larger document 'Subtrust'
Bypass trust (aka 'credit shelter trust' aka 'Family Trust') 1. Income= to Joe
2. Principal= to Joe for his HEMS
3. Death of beneficiary = 4. Surviving spouse (SS) can be trustee IF a) Ascertainable standard for principal
5. NOT included in SS estate
MA Bypass Trust: Mary's first $1 million Irrevocable • Simple Income = ALL to beneficiary (usually SS) Principal = None for the YEAR actually distributed nor charitable • Complex All others • Can be simple one year, complex in another year
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2/17 /2015
M706 MA estate tax return ------------------------- Schedule G ------------------------------"Decedent transferred assets to a trust that was revocable by him under IRC 2038. Copy of trust is attached. See listing of assets owned by the trust attached. Name of trust was "xxx, dated ". Trustees were hhh and www."
If Mary owned $1.4 million (of $2 million) • Marital trust for amount over $1 million Income = ALL income to SS Principal= Death of beneficiary = • Simple Trust for ANY year no corpus is distributed • Can change from year to year • OR can be outright to Joe
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2/17 /2015
Post death Grantor trust? • Grantor Trust? Possibly Deceased? NO Beneficiary: MAYBE IRC 678 - Mallinckrodt trusts Beneficiary can withdraw principal IF GRANTOR TRUST then all Income, Credits and Deductions belong to beneficiary (671)
United states Estate {and Generation-Skipping
"" 706
BYPASS TRUST USED
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