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How is income paid to trust treated in year trustee dies?

San Francisco, CA |

My dad had a trust and he passed in March 2012. His rental property pays to the trust. (The trust is still open as we continue to liquidate his assets). Is income received to trust exempt from taxes for all of 2012, or are beneficiaries liable starting after the date of his death? Or, are beneficiaries liable once they receive payouts from the trust?

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Attorney answers 3


The successor trustee is responsible for filing income taxes, etc., on behalf of the trust. The successor trustee should consult qualified tax counsel as well as an attorney in matters that concern the affairs of the trust.

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Your father should have a final individual income tax return (Form 1040) covering the period from January 2012 until his death. The trust should file Form 1041. You should speak with a good tax preparer, accountant, or tax attorney about filing Form 1041 as there are a number of elections that may be beneficial depending on your circumstances. The 1041 will generally generate a K-1 for each beneficiary. As a result, the Successor Trustee should seek advice immediately in order to avoid possibly holding up all the benefiaries' tax returns.

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It would be smart to get this matter to a CPA for handling the tax matters. The taxes can be almost punitive on a trust, if the income is not passed through appropriately to beneficiaries or exempted out for qualified expenses.