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Note: This web page will be completed in stages.
Description
Due Date
Tax Tips
Tax Articles
Filing Exemptions
Filing Time
Related Forms
Required Records
Tax Rates
Tax Data
IRC Sections
IRS Publications
Tax Law 97
Scheduled Changes
For each tax form, the IRS is required to provide an estimate of the time that is required for the taxpayer to keep records, to read the instructions, to prepare the form and to prepare it for mailing to the IRS. It appears that the IRS bases their estimates on minimum amount of time required for each part of the process and that the taxpayer is a tax professional. Here are their estimates for the average filing time for each part of the process of preparing the estate tax return.These estimates are the sum of the separate estimates for each of the various schedules. Thus, these amounts presume that the return would involve every supporting schedule that could be required with the estate tax return.
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| Recordkeeping | 9 hours, 40 minutes |
| Reading the instructions | 6 hours, 44 minutes |
| Preparing the form | 11 hours, 14 minutes |
| Copying, collating and mailing | 8 hours, 45 minutes |
| Total time | 36 hours, 23 minutes |
The Taxpayers' Relief Act of 1997 - Statement of the Managers
The following are the sections of the 1997 law that have the most impact
on the income tax returns of estates and trusts.
IRA Changes and Capital Gains Tax Changes
Revenue Increases - Financial Products
Simplification Provisions
Taxpayer Protection Provisions
Estate, Gift & Generation Skipping Tax Provisions
Estate, Gift & Trust Simplification Provisions
However, it is necessary to make a formal transfer of title for any assets that you want to have in a living trust in order to avoid probate. Until an asset is formerly re-titled in the name of your living trust, it's still in your probate estate. (Any jointly owned property or property with named beneficiaries will be transferred directly to the joint owners or the beneficiaries.)
If you choose to have someone else serve as the trustee of your living trust (like a bank trust department), the trustee will then have to apply for a taxpayer I.D. number and will have to file an annual form 1041 to report any income of the trust.
If a revocable trust has more than one beneficiary, or if it has beneficiaries other than the donor of the trust, it will need to prepare an annual form 1041 and annual K-1 forms.
But, with an irrevocable trust, if the trust has any income in excess of its distributions to the trust beneficiaries, then the trust must pay income taxes on that retained income. That means that quarterly estimated tax payments will be required to avoid penalties for underpaying estimated taxes. Any state that has a state income tax would also require annual tax returns for trusts.
If you aren't familiar with preparing these forms, I would urge you to find a tax preparer who has that experience. By the way, a lot of tax preparers never prepare a trust tax return or quarterly estimated tax deposits for a taxable trust. So ask around to find one who does have specific experience with taxable trusts. Problems can occur easily when the preparer doesn't have any real experience with these entities.
Even if the irrevocable trust has distributed all of its income to the trust beneficiaries, it must file a form 1041 and must file a form K-1 for each of the beneficiaries.
Further details about legal methods of tax avoidance are available in our subscriber's web site. Changes in the tax laws and research reports on how to avoid excessive taxes are provided in our monthly newsletter - Vern Jacobs' Tax Solutions
About the author:
Vernon Jacobs is a CPA/CLU who works as a tax author and consultant. He writes Vern Jacob s' Tax Solutions, is the author of The Jacobs Report on Asset Protection Strategies, and serves as the Tax Editor for OFFSHORE, an eJournal. He has “big six” CPA experience and spent 12 years as a senior financial executive for an insurance company. He’s been the software columnist for Personal Financial Planning for five years. His email address is vkj@rpifs.com and his web site is http://www.rpifs.com/apvkj.htm He can be reached by phone or fax at (913) 362-9667.
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