Grantor Trust to Complex Trust?

Thank you in advance for any words of advice. Client had a trust containing most of his assets. Previous accountant had obtained a tax id for the trust and had been filing an annual 1041 as a grantor trust with all activity passed through to the client's 1040 via a grantor letter. Client dies mid year. Per the attorney and consistent with my reading of the trust document this trust is now a complex trust after the date of death. The brokerage 1099 comes in and all activity (before and after death) is reported on the same 1099 using the same trust tax id that has always been used. Due to the type of trust there is no basis step-up so no issues there. Do the pre-death investment gains/losses get reported on a separate 1041 Grantor type trust return (marked final?) and the post death gains/losses go on a separately filed 1041 complex trust return using the same tax id? Or, on the 1041 do I check both the complex trust and grantor type trust and report pre and post death activity on the same return with allocations accordingly?

Due to the type of trust there is no basis step-up so no issues there

Nothing in your description would suggest that , however

One 1041. Grantor statement through date of death. Document language determines type of trust for remainder of year. There is no requirement that complex is automatic.

Dennis, out of curiosity, is it still possible nowadays that the grantor, or his spouse, could have had a power to distribute funds to trust beneficiaries based on an ascertainable standard and that power would create a trust that is "defective" for income tax purposes but not estate tax purposes?

Similarly, perhaps, a trustee could have the power to distribute income to the grantor, creating a Grantor Trust yet placing the assets outside the estate so there is no step up in basis.

And, yet, would the examples above be treated for reporting purposes as a "Grantor Trust" or merely as a "normal" trust with a K-1 to the grantor?

And even more possibilities which is why one of the first questions that should be asked is why and then may i speak with the drafting attorney...♫

Given the minuscule number of taxpayers currently affected by transfer tax there would not seem a reason to give up a basis adjustment.

To answer your question, the grantor statement applies when grantor is the deemed owner of the income, the assets or both.

Dennis (and anyone else) I have a similar situation and a related question--

Irrevocable grantor trust with separate EIN has been passing through income via grantor statement for years. No issues there.

Grantor died mid-year but nothing was done with the assets; trust not yet distributed to residuary beneficiaries. I understand about the grantor statement through dod; does the trust pick up the income for the rest of the year or should it be taxed to the beneficiaries even though they haven't received it yet?

I'm assuming this is the proper way to handle it but would appreciate confirmation. I'd run it by the attorney who drafted it but he has retired and is unavailable.

If the trust is complex post death it is a taxpayer on undistributed net income

Unless the trust document requires income distribution and precludes charitable contributions it isn't a simple trust even if it distributes all income and doesn't make charitable contributions.