Intentionally Defective Grantor Trust when grantor dies

My client had an IDGT with her son as beneficiary. She passed away in October 2017. Do I need to file 2 separate returns - a grantor for the period she was living and a complex for the period after her death? Or can I file one return including the income, deductions, etc for the period after death as a complex trust and attach a grantor letter for the income prior to her passing? Thanks

Do you have a copy of the trust?

Not really two separate returns, or at least not two 1041s. Anything up to DOD is passed to her individual return under the Grantor rules just like it has been. that is easy. Then it automatically turned into an irrevocable upon death so ein needed and 1041 return if warranted. If all income distributed to bene, then you should be good.

And as taxea mentioned, be sure you have a copy of the trust agreement...go thru it.

I have a copy of trust. I'm still confused. This is an Intentionally Defective Grantor Trust. It is already irrevocable (with existing EIN) and I don't think it would need a new EIN but I'm not positive about that. The beneficiary (son) has been receiving the distributions but because of the IDGT status the income has been reported to the Grantor (we have been filing the grantor 1041.) Now that the Grantor is deceased, I'm not sure how to report the income assuming I do not need a new EIN. Pre death income on a Grantor 1041 (since that's the way we have been filing) AND a separate complex 1041 for the post death income that will be reported on K-1 to the beneficiary (son)? Or can I (must I) file a complex 1041 with the post death income and also attach a Grantor letter for the pre death income? What other information should I be looking for in the trust? Thanks again.

I hate trusts. Is the attorney that did the trust still around? Ask him.

Shouldn't the pre-death income have been reported on the Grantor's 1040 for the years the Grantor was alive along with a 1041 to show the distributions for those years went to the grantor? Now that the grantor is dead the 1041 shows the K-1 distributions going to the beneficiary. No need for a new EIN.
Why were the distributions to the beneficiary being reported as income to the Grantor on the trust return? It was taken from the trust and given to the son. How can you have distribution from the trust be reported as income to the trust?

You could go about this 2 ways. One way, follow the form instructions for partial grantor trusts. You’d check the grantor trust box and the complex trust box and report things accordingly on a single 1041 for the entire calendar year. Other way, file a short year 1041 for the grantor trust for the first part of the year and a second short year 1041 for the second part of the year. I vote for Method #1. Either way, we get to the same place. (And I understand your dilemma…at no time was this trust a “partial” grantor trust for income tax purposes…It was 100% a grantor trust for a while and then a 0% grantor trust for the next while [although some might say that when we look at the entire year, we get a blend, and hence, a partial]. In any case, I do agree that it could be said that the situation doesn’t fit squarely into the 1041 instructions…but I don’t think it matters much. You’re fine if you follow those form instructions for partial grantor trusts).

Why were the distributions to the beneficiary being reported as income to the Grantor on the trust return?

They weren’t. OP never said that. OP said:

The beneficiary (son) has been receiving the distributions but because of the IDGT status the income has been reported to the Grantor (we have been filing the grantor 1041.)

And these comments are fairly worthless, so you can ignore them:

Do you have a copy of the trust?

And as taxea mentioned, be sure you have a copy of the trust agreement...go through it.

Thank you Jeff-Ohio. I vote for Method #1 also.

Update FYI: This situation came up again with different decedent and different beneficiary. This time the attorney was involved. Attorney (CPA) said new EIN is required at DOD since IDGT is considered a grantor trust for tax purposes - similar to a revocable trust. I mentioned that I did not file the previous situation this way and the IRS has not questioned this. Attorney was not surprised and he knows of accounting firms who don't get the new EIN and file as one trust. Don't know what to make of that but followed the attorney advice on this one.