Technical topics regarding tax preparation.
13-Nov-2018 9:22am
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Hi all,
We file the tax returns for an irrevocable trust. The trust was written several decades ago. The beneficiary was the son. The son has passed away. In the trust documents is a section that states upon the death of the son, the "residual of said trust shall be distributed to a charitable institution..."
What is the proper way to handle the final distribution from the trust to a charitable organization (the trust is silent as to what charity the proceeds go to, just that the trustee has full discretion)?
There will be both income & corpus, all going to the charity. Does the income go on Schedule A, and the distribution of the corpus go on a Sch K-1 made out to the charity?
Apologies in advance, I don't deal with trusts too often. Please let me know if you need any additional details.
Thank you!
13-Nov-2018 1:59pm
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Since tax exempt and no other bene's several options:
1. Pick charity get tax ID send check for tota; distribution and issue K-1 for all net income and deductions like a contingent beneficiary.
2. Send check to selected charity for total distribution and take a Schedule A charitable deduction up to income so as no net taxable income for trust.
13-Nov-2018 2:39pm
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Thanks for the reply Weissea,
In option #2, how would you get the total distribution of corpus out of the trust? Issue the K-1 to the decedent with a total distribution?
14-Nov-2018 11:28am
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I would be careful that this is not a charitable remainder trust that should have been filing form 5227
14-Nov-2018 5:45pm
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ThatTaxGuy wrote:Issue the K-1 to the decedent with a total distribution?
On what line would you propose to show this?
15-Nov-2018 8:34am
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sjrcpa wrote:ThatTaxGuy wrote:Issue the K-1 to the decedent with a total distribution?
On what line would you propose to show this?
Based on initial research, Schedule B Line 10 for the distribution of corpus, and then Line 14I on the K-1.
16-Nov-2018 7:08pm
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1041 instructions state for Schedule B line 10: Line 10 is to be completed only by a decedent's estate or complex trust.
These distributions consist of any other amounts paid, credited, or required to be distributed and are referred to as
second tier distributions. Such amounts include annuities to the extent not paid out of income, mandatory and discretionary distributions of corpus, and distributions of property in kind. So its the total distribution( income and corpus).
Schedule K line 14 is other info needed for bene to complete 1040. Not sure why bene needs total distribution to compleete 1040? My sw does not put any 1041 distribution on K-1 unlike a business K-1.
20-Nov-2018 2:12pm
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WEISSEA wrote:1041 instructions state for Schedule B line 10: Line 10 is to be completed only by a decedent's estate or complex trust.
These distributions consist of any other amounts paid, credited, or required to be distributed and are referred to as
second tier distributions. Such amounts include annuities to the extent not paid out of income, mandatory and discretionary distributions of corpus, and distributions of property in kind. So its the total distribution( income and corpus).
Schedule K line 14 is other info needed for bene to complete 1040. Not sure why bene needs total distribution to compleete 1040? My sw does not put any 1041 distribution on K-1 unlike a business K-1.
Thank you for the info Weissea. As I stated, I don't deal with a lot of trusts so your post is very helpful.
30-Mar-2020 12:49pm
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Good info in these posts. Thanks WEISSEA.
Remember for planning what this does -- if there are specific gifts to family/friends with the contingent beneficiaries the will have no K-1 income as it will be allocated to the contingent beneficiaries K-1 (charities) which are to exempt organizations.
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