simple or complex trust?

I live in california, I am the successor trustee of my fathers trust. he died in 2006. The only income the trust receives is monthly rental income from a gas station. I distribute $2,000 to my sister and I keep the rest of the monthly income. the first year I filed a k-1 for my sister but did not file one for myself. This year I will file a k-1 for both of us. This is the second year I will be doing the trust tax return. A few questions I have, the first year tax return I said it was a complex trust because I did not distribute all the income. In the years I do distribute all the income can I say that the trust is a simple trust? Am I able to change from year to year saying its a complex or simple trust? Also how can it be a simple trust if you need to keep some money in the trust to pay lawyer fees and expenses? thank you

Reply to
whiskers
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I think if the terms of the trust do not REQUIRE you to distribute all the trust income each year, it is a complex trust. This is so even if you do distribute all the income in a particular year.

Reply to
inky dink

That's my understanding as well.

Stu

Reply to
Stuart Bronstein

If you got any of the income, you must get a K-1. If there was income that wasn't distributed it must be taxed to the Trust. If the trust instrument requires all income to be distributed, you must distribute it all on K--1s and it is then probably a Simple Trust, but that is immaterial to you if all the income is distributed on K-1's. Since you didn't distribute all the income it's a Complex trust, but you have filed a false return nd taken cash without reporting on a K-1 so probably you didn't pay tax on it either.

No Unless the trust instrument requires distributionof all ncome you can't call it a Simpl;e Trust. It doesn't make any difference to you because if all the income is distributed there is nothing to save with a higher Exemption.

No, not unless it is actually a Simple Trust and you fail to follow the terms so that it becomes a complex Trust that year..

A Simpole rust would pay the bills and deduct them from YOUR current income becaus your sister gets a fixed amount. Curent income to distribute is AFTER paying expenses. Spend some of that income on a competent tax preparer, or read the 1041 instructions.

ed

Reply to
ed

I think what is confusing in a trust tax return is the terminology, e.g. the term "distribution" means assigning income to a beneficiary on a K1 regardless of whether they received any actual cash or income or assets. Lawyers can make trust terms vague and confusing so there are different interpretations for an executor. The OP should seek competent advice but it is not outside the realm of doing it yourself once you get good advice.

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Reply to
ChrisZ

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After reading the trust over again. It does say to distribute all the income. the first year I had to make some charitable contributions, so that first year it did not qualify as a simple trust as per the 1041 instructions. the second year I left some money in the trust to pay some large lawyer fees that were coming up early in the following year, which is this year. So again i will file as a complex trust. In the years ahead I plan on distributing all the income less the expenses to qualify it as a simple trust. Again thank you for everyone's replies.

Reply to
whiskers

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A Simple Trust is prohibited from allowing its funds to be used for charitable purposes. If your roriginal trust instrument allows this it is NOT a Simple Trust and never can be. You read the Instructions for form 1041 in these regards (seee page 41). From a practical matter I ihave been a trustee for dozens of trusts and have never called any a Simple Trust because there is no retained income to shelter with the extra $200 of Exemption and if applied to retained capital gains it would only result in a $30 tax difference at most.

ed

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ed

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the charitable contributions were only for the first year of the trust. But as you say it is only a $30 difference between filing as a simple vs. complex trust. I will file as a complex trust in the future. Again thank you for everyone's reply. This group has really helped me.

Reply to
whiskers

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There would be $30 difference if there was any income or gains to offset it. In your case yhou'd never get the$ 30. File as Complex.

ed

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Reply to
ed

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