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Posted by cballard@tyyni.net on October 29, 2007, 3:32 pm
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> 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.
Make you you don't mix up "estate tax" with "estate income
tax" (more formally known as "fiduciary income tax"). Even
with an estate worth less than the $2 million estate tax
threshold, you could very easily end up in a situation of
needing to file an income tax return for the estate.
The reason for section 645 has to do with fiscal years. A
trust is required in most circumstances to use a calendar
year as its fiscal year. An estate can pick any fiscal year
end that it wishes. By making the 645 election, the trustee
of a decedant's previously revocable trust agrees to report
all of the trust's income on the decedant's estate's income
tax return. This essentially lets the trust adopt a fiscal
year for up to two years after the decedant dies.
Where this is particularly useful in in the case of a
relatively simple estate administration, where the
distributrion of the decedant's estate and trust can be
wound up in less than a year. By making the 645 election,
any income during that time period can all be shown on one
return. Without making the 645 election, the personal
representative would file one return for the estate, and the
trustee might end up filing two returns for the trust.
Whether the election makes sense in your particular case
will depend on when your mother died, and on her sepcific
tax situation.
You make the election by filing Form 8855 with the IRS.
Take a look at the instructions to that form and for Form
1041 for information about EINs. The trust must get its own
EIN as of your mother's date of death, but if you make the
645 election, you will end up reporting the trust's income
under a different EIN.
It may be worth seeing an accountant who has some
familiarity with trust and estate taxation. Fiduciary tax
is one of the more arcane areas of tax law.
--Chris
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