Re: Section 645


Re: Section 645

Groups | Search | About

User Password

Lost Password?

Taxes General Forum - Tax professionals meeting place and answers to queries. (Moderated)

get this group's latest topics as an RSS feed

add this group's latest topics to your My MSN content

add this group's latest topics to your My Yahoo content

add this group's latest topics to your Google content

Yahoo!

Google

Windows Live

del.icio.us digg

digg

Netscape

Subject

Author

Date

Re: Section 645

Perplexed

10-28-2007

Re: Section 645

Stuart Bronstei...

10-29-2007

Re: Section 645

Drew Edmundson

10-29-2007

Posted by Perplexed on October 28, 2007, 4:04 pm

Please log in for more thread options

an_ordinary_guy_...@hotmail.com (Bill) wrote:

> nellplo...@yahoo.com (Perplexed) posted:

>> IRS says: "A trust filing as an estate under

>> Section 645 election allows a Qualified

>> Revocable Trust to be treated and taxed (for

>> income tax purposes) as part of its related

>> estate during the election period. Once the

>> election is made, it cannot be revoked."

>> I need to get a tax ID. Should I indicate that

>> this is a QRT? Mother's estate is not so large

>> as to be taxable, substantially under a million,

>> maybe $500,000 in a stretch.

>> What is the "election period:?

> If you mother has established a "revocable living trust,"

> upon her death it becomes "_irrevocable_." At that point,

> the trust requires a tax ID -- to replace the decedent's

> Social Security number.

> If you are the executor or legal representative for your

> mother's estate, see Pub 559. If you're simply winding up

> her affairs, and filing a "final return," no new number

> should be required. But if there's a trust which continues,

> then a Tax ID is required, and the executor would issue K-1s

> to beneficiaries for their shares and would file a return

> using Form 1041.

I am winding up her affairs and wish to park a substantial
sum in a savings account at the bank where the revocable
(now irrevacable) living trust has an account. The bank is
insisting on a tax ID (not SSN) for the now irrevacable
living trust. She passed away within the last 6 weeks and I
am uncertain when her affairs will be settled - not more
than 6 months I hope.

If I wish to earn interest on the cash proceeds of her
estate I need a tax ID. The only question on the table is
the election to count the interest as a part of her estate.

I am Mother's personal representative and a trustee. Guess
I need to read Pub 559 to fugure out the difference between
making the 645 election and not making the election.

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

Posted by Stuart Bronstein on October 29, 2007, 3:32 pm

Please log in for more thread options

Perplexed wrote:

> I am winding up her affairs and wish to park a substantial

> sum in a savings account at the bank where the revocable

> (now irrevacable) living trust has an account. The bank is

> insisting on a tax ID (not SSN) for the now irrevacable

> living trust. She passed away within the last 6 weeks and I

> am uncertain when her affairs will be settled - not more

> than 6 months I hope.

The moment your mother died her trust became irrevocable.
The moment it became irrevocable it became a separate
tax-paying entity, requiring its own tax ID number.

Also the moment your mother died her estate became a
separate tax- paying entity.

> If I wish to earn interest on the cash proceeds of her

> estate I need a tax ID. The only question on the table is

> the election to count the interest as a part of her estate.

It seems to me the only reason to do that is that income tax
on the estate would be less than tax on the trust. But both
estates and trusts have the same marginal rates. So what's
the benefit? In fact, if you add estate taxable income to
trust taxable income (if there is any difference) then the
total tax might be pushed into a higher than necessary tax
bracket and income taxes would actually be higher.

> I am Mother's personal representative and a trustee. Guess

> I need to read Pub 559 to fugure out the difference between

> making the 645 election and not making the election.

If you make the election, the trust's income is taxed as if
earned by her estate. If you don't, it's taxed separately.
That's not the same as whether or not the trust needs a
separate tax ID number.

Check with your tax preparer to determine if this is a good
idea. For me, I can't see any reason why you'd want to do
it.

Stu

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

Posted by Drew Edmundson on October 29, 2007, 11:26 pm

Please log in for more thread options

> Perplexed wrote:

>> I am winding up her affairs and wish to park a substantial

>> sum in a savings account at the bank where the revocable

>> (now irrevacable) living trust has an account. The bank is

>> insisting on a tax ID (not SSN) for the now irrevacable

>> living trust. She passed away within the last 6 weeks and I

>> am uncertain when her affairs will be settled - not more

>> than 6 months I hope.

> The moment your mother died her trust became irrevocable.

> The moment it became irrevocable it became a separate

> tax-paying entity, requiring its own tax ID number.

> Also the moment your mother died her estate became a

> separate tax- paying entity.

>> If I wish to earn interest on the cash proceeds of her

>> estate I need a tax ID. The only question on the table is

>> the election to count the interest as a part of her estate.

> It seems to me the only reason to do that is that income tax

> on the estate would be less than tax on the trust. But both

> estates and trusts have the same marginal rates. So what's

> the benefit? In fact, if you add estate taxable income to

> trust taxable income (if there is any difference) then the

> total tax might be pushed into a higher than necessary tax

> bracket and income taxes would actually be higher.

Possible benefits of the Section 645 election:

One return is required instead of two. Which can save
professional fees and simplify things for the executor.

The loss in one entity can be claimed against the income in
the other (e.g. often the estate has a loss in year 1 if the
trust was properly funded before death (little income
earning assets in the estate and big administrative
deductions, executor commissions, etc.).

Often some/all of the estate's income carries to the trust
anyway so why not file one return? It seems common for the
estate to eventually distribute almost everything to the
trust and then the trust makes the distributions to the
heirs/beneficiaries.

But you are right that the election can increase taxes. So
as in much of life, the answer depends on the facts and
circumstances.

--
Drew Edmundson, CPA
Cary, NC

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

Similar Threads	Posted
Section 351 or 354 or Section 721?	November 17, 2006, 11:30 pm
Section 121	January 23, 2007, 2:23 am
Section 645	October 26, 2007, 11:51 pm
Re: Section 645	October 29, 2007, 3:32 pm
Re: Section 645	October 30, 2007, 11:47 pm
Section 691(c)	May 3, 2008, 1:25 pm
Re: Is This Section 179 Property?	September 7, 2006, 4:24 am
Section 199 Deduction	January 24, 2007, 2:34 am
Section 179 Expense	January 30, 2007, 10:11 pm
Section 179 carryover	April 12, 2007, 12:25 am

Contact Us | Privacy Policy
This site is not affiliated with Intuit - makers of Quickbooks and Quicken software
This site is not affiliated with Sage Software - makers of Peachtree accounting software

XML Sitemap