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Posted by sgallagher@rogers.com on March 1, 2007, 8:49 pm
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>> My father was receiving some class action awards prior to
>> his death in 2006. They were not considered taxable to my
>> father when he was receiving them. His death was not
>> related to the class action cases. Some class action awards
>> will be coming in for several years still, according to the
>> lawfirm handling them.
>>
>> In order to continue receiving these awards my mother had to
>> have his will probated in Florida and a bank account opened
>> in the name of my father's estate, as awards will be
>> "Payable to the Estate of .........."
> The payor wanted to be sure that mom was taking the money
> without paying the funeral bills, and that mom was the sole
> heir. There were simpler ways to do it than Probate, but
> the Probate shouldn't have cost you anything, or very
> little.
You're correct, the lawyer that we dealt with charged a flat
$500, to have the will probated. A few lawyers wanted to
collect a percentage of every award that might ever be
ordered in the future and we walked away from them. The
awards waiting to be paid have more than covered the $500
already.
>> Part of this process was the issuance of an EIN for the
>> estate.
>>
>> The estate has no assets as everything else was jointly
>> owned, and passed into my mother's name.
>>
>> The IRS sent my mother a letter telling her to file a 1041
>> for the estate for 2006. The estate had no income in 2006.
> Don't file a return then.
We weren't sure whether a return was required even if no
income was generated.
>> Questions:
>>
>> Are the class action awards still tax free?
> YES
>> If yes, and the estate generates no other income, does she
>> still have to file a 1041 for the estate.
> Yes if they (the estate income) are over $600
But since you say that the awards should still be tax free
and I threw in the comment that if the estate generates no
other income, it would appear that the $600 threshold would
never be reached.
>> If an award does come in, and she cashes the check in the
>> estates bank account, and then transfers it into her
>> personal bank account, is it considered taxable income to
>> her.
> NO it is a flow-through tax free settlement. No tax to the
> 1041 and no tax to mother.
>> P.S. As a side note, we have confirmed that there is no
>> "estate tax" due.
> P.S> It will be unusual to keep an estate open for several
> years, but it looks like you'll have to. Maybe. after a
> year, they'll write the checks to mom and you can close out
> the estate with a final 1041.
The lawyer handling the class action suits says to expect
awards for the next few years, as they have multiple cases
open.
Thanks to all for their replies.
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