You make the callBy: NATP Research
November 29, 2023

Question: Suzanne and Mike Sparks, a married couple, transferred their assets, including rental properties, to a single qualified revocable trust of which they were both considered grantors. As such, the income, expenses and credits were reported on their Form 1040, U.S. Individual Income Tax Return, (MFJ). When Mike died on April 1, 2023, the trust became irrevocable as to the assets of the deceased spouse. For 2023 reporting purposes, the revocable trust would report 100% of its income and deductions for the period from Jan. 1, 2023, to April 1, 2023, and then only Suzanne’s trust income and deductions through the end of the year. Now, Form 1041, U.S. Income Tax Return for Estates and Trusts, must be filed to report the irrevocable trust’s income for Mike’s trust assets for the balance of the year. Since a Form 1041 would also be required for Mike’s estate, would they be required to file two Forms 1041 – one for the newly formed irrevocable trust and one for Mike’s estate?

Answer: No, as long as they make the §645 election to have Mike’s portion of the qualified revocable trust treated as part of the related estate, they can combine the income tax reporting of the qualified revocable trust and estate into one Form 1041.

Mike’s executor elected to treat Mike’s portion of the trust’s assets as part of Mike’s estate for income tax purposes. Once the election has been made by filing Form 8855, Election To Treat a Qualified Revocable Trust as Part of an Estate, the box in item G of the heading on Form 1041 (page 1) should be checked. The executor must also attach a statement to Form 1041 providing the name and TIN of each electing trust, and the name and address of the trustee for each electing trust.

Because of this election, the income, deductions and credits associated with Mike’s portion of the trust from April 2, 2023, through March 31, 2024 (the year-end of the estate), will be included on the estate’s Form 1041 for the same period, and no separate trust tax return will be filed for Mike’s portion of the trust. Though Mike’s portion of the assets are in an irrevocable trust, only one Form 1041 (for the estate) is required to report the activity on Mike’s assets as a result of making the §645 election.

To learn more on trusts, check out our three-part on-demand webinar on forming, operating and terminating a trust.

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Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing. All taxpayer circumstances are different, and NATP recommends contacting research services if you have specific questions about your clients’ tax situations.

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