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Posted by Perplexed on October 30, 2007, 11:47 pm
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>> 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.
Thanks folks.
Mom's assets are all in bonds and MM accounts but one of the
bonds will likely be called at par next year - it is to the
advantage of the beneficiaries to keep the trust open until
then. I think I will elect to have it taxed as an estate
and elect the Section 645 designation. I know the trust will
still have assets after Jan 1 now so why not attempt to
simplify life.
For those who suggested that I seek the advise of an
accountant, actually my daughter is a CPA but her focus is
venture capital. She is about to have her 2nd baby and is
in the middle of a change of residence.. she is just hanging
in there with family and professional responsibilities so I
didn't want to add to her burden. So, consider your help as
that which you would give a colleague's Mom when your
colleague is swamped.
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