Re: Section 645

> Perplexed wrote:

>>> I am winding up her affairs and wish to park a substantial >>> sum in a savings account at the bank where the revocable >>> (now irrevacable) living trust has an account. The bank is >>> insisting on a tax ID (not SSN) for the now irrevacable >>> living trust. She passed away within the last 6 weeks and I >>> am uncertain when her affairs will be settled - not more >>> than 6 months I hope. >> The moment your mother died her trust became irrevocable. >> The moment it became irrevocable it became a separate >> tax-paying entity, requiring its own tax ID number. >> Also the moment your mother died her estate became a >> separate tax- paying entity. >>> If I wish to earn interest on the cash proceeds of her >>> estate I need a tax ID. The only question on the table is >>> the election to count the interest as a part of her estate. >> It seems to me the only reason to do that is that income tax >> on the estate would be less than tax on the trust. But both >> estates and trusts have the same marginal rates. So what's >> the benefit? In fact, if you add estate taxable income to >> trust taxable income (if there is any difference) then the >> total tax might be pushed into a higher than necessary tax >> bracket and income taxes would actually be higher. > Possible benefits of the Section 645 election: > > One return is required instead of two. Which can save > professional fees and simplify things for the executor. > > The loss in one entity can be claimed against the income in > the other (e.g. often the estate has a loss in year 1 if the > trust was properly funded before death (little income > earning assets in the estate and big administrative > deductions, executor commissions, etc.). > > Often some/all of the estate's income carries to the trust > anyway so why not file one return? It seems common for the > estate to eventually distribute almost everything to the > trust and then the trust makes the distributions to the > heirs/beneficiaries. > > But you are right that the election can increase taxes. So > as in much of life, the answer depends on the facts and > circumstances.

Thanks folks.

Mom's assets are all in bonds and MM accounts but one of the bonds will likely be called at par next year - it is to the advantage of the beneficiaries to keep the trust open until then. I think I will elect to have it taxed as an estate and elect the Section 645 designation. I know the trust will still have assets after Jan 1 now so why not attempt to simplify life. For those who suggested that I seek the advise of an accountant, actually my daughter is a CPA but her focus is venture capital. She is about to have her 2nd baby and is in the middle of a change of residence.. she is just hanging in there with family and professional responsibilities so I didn't want to add to her burden. So, consider your help as that which you would give a colleague's Mom when your colleague is swamped.

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Reply to
Perplexed
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The advice should have been to seek the advice of an accountant whose practice includes estate tax law. It does not sound like your daughter would qualify, even if she wasn't so busy.

Reply to
Brian

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