Annuity distributed long after final tax return.

Taxpayer dies in 04 and trust docs say everything is to be distributed within 120 days. Trust was the owner of the annuity and Brighthouse will only issue the check to the owner so they will send it in the EIN of the trust. The trust was closed and final returns done long ago. Not sure why this wasn't distributed back then. Now the beneficiaries of the trust want the money. The beneficiaries were a brother and sister but brother has since died so his two kids are now beneficiaries. My client, one of the beneficiaries, has shown them the trust docs, the death certificate and anything else to show them that the monies should go to the 3 beneficiaries but Brighthouse says no. What is the best way to handle this?

Can you clarify, was there any taxable income generated by the annuity since 2004? If so, where was it reported and taxed?

A Form 1041 is an income tax return. If there is no income, no return is required.

What is the best way to handle this?

Logic and common sense would dictate: (1) Apply for a new EIN. Don’t use the old one. (2) Open a bank account. (3) Get the check from Brighthouse and deposit it. (4) Then distribute the money to the benes. (5) File a tax return and issue K1’s. Not sure if tax will be withheld, but if it is, not a big deal. That will just come back to the trust in the follow year, as a refund, and can then be distributed. Don’t close the bank account until all monies have been received and distributed, all bills paid, etc. You can mark this one tax return initial and final.

This isn’t an infrequent occurrence.

I have an estate that just came in. There were 2 annuities paid to the estate. No 1099's issued yet from the annuity company, but I have copies of the check remittance advice showing federal taxes withheld. I think those annuities are going to be taxable on the form 1041 when we do eventually receive the 1099's, unless there is basis.....so as to post # 3....even if there is tax withheld, I would think there would be tax..

even if there is tax withheld, I would think there would be tax..

Could be. Depends on what the basis is and the level of tax withholding. If gross is $100k and basis is $20k, and tax withholding is $16k [20% of the $80k taxable]…there’d be $84k in cash to distribute. $80k taxable less the distribution deduction equals $0 taxable to the entity. All tax would be refunded (to the entity).

So, by distribution deduction, I assume you would be shifting the taxes out to the heirs. In an estate for a deceased person with only annuities, I would think it would be easier on all concerned to have the estate pay the tax

I assume you would be shifting the taxes out to the heirs.

Not the tax withholdings, but the taxable income (and the attendant tax obligation).

I would think it would be easier on all concerned to have the estate pay the tax

Might be easier, but wouldn’t be allowable and would cost, possibly, a great deal more in taxes. We’re talking about everything taxed to one entity (bad)…vs. spreading it to 3 people (good). Granted, two of those benes are kids and might be subject to the Kiddie Tax (now at Trust rates), but I don’t know how old they are.

Thank you for all of the replies. According to the client there is income but no returns have ever been filed since 05 and everything just sat there. Jeff-Ohio, your suggestion was my first gut reaction but I wasn't sure if because of the original ein #s and the final returns if that was possible. I didn't want to muddy the waters but since the Annuity won't issue the check any other way I was kind of at a loss. I guess I was just complicating things in my mind. Sometimes the obvious is the answer. Thank you.