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Subject Author Date
Income tax on survivor spouse Stuart Bronstein 05-02-2008
Posted by joetaxpayer on May 3, 2008, 8:36 am
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Stuart Bronstein wrote:
> 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.

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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Posted by HW \"Skip\" Weldon on May 3, 2008, 9:45 am
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 wrote:


>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.

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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Posted by Stuart Bronstein on May 3, 2008, 10:23 am
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>
>>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.
>
> Agree. Barring further information, my answer is that the
> difference in taxation is a SNAFU by the preparer.

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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<< 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. >>
<< >>
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<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
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Posted by Avrum Lapin on May 3, 2008, 1:04 pm
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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

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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<< 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. >>
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Posted by Stuart Bronstein on May 3, 2008, 1:13 pm
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>> 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?
>
> 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.

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.

> 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)

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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<< ------------------------------------------------------- >>
<< 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. >>
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