K-1 / Estate Flexibility?

[ERD50]

Somewhat related to this thread:

http://www.early-retirement.org/forums/f28/think-of-your-heirs-97171.html

I have a question about flexibility in assigning gains from an Estate to multiple heirs in an estate. I'll run this by my tax guy, but thought I'd get my bearings here first.

My MIL/FIL's estates have small cap gains associated with them (gains after the step-up in basis since date of death). The heirs are their 3 kids and the grand kids.

I understand that the 'normal' and 'fair' process is to assign the gains to the K-1s in the same proportion as the distributions. But I'm pretty sure that the IRS doesn't really care how it is assigned, as long as all the gains are accounted for and paid by someone.

So to keep things simple, I'd like to propose that the gains be split evenly across the 3 kids. This avoids sending K-1s to all the grand-kids, and them having to wait for the K-1s and also have their taxes slightly more complex. The 3 kids would need to do K-1's anyhow, so as long as they don't mind accepting a slightly higher tax burden (1/3rd of the total, rather than 1/4th of the total), which I think they will accept, then this seems worth the simplification.

Does anyone know if this is a problem? I assume as long as the IRS sees 3 K-1s that account for the gains, all is good?

-ERD50

 

[SecondCor521]

That sounds reasonable to me.

Another possibility is for the estate to keep the gains and file its own tax return, paying the income taxes due from the gains or the corpus. Although this may result in a higher tax bill, zero K-1s is probably even simpler than 3 K-1s.

 

[gauss]

Somewhat related to this thread:

http://www.early-retirement.org/forums/f28/think-of-your-heirs-97171.html

I have a question about flexibility in assigning gains from an Estate to multiple heirs in an estate. I'll run this by my tax guy, but thought I'd get my bearings here first.

My MIL/FIL's estates have small cap gains associated with them (gains after the step-up in basis since date of death). The heirs are their 3 kids and the grand kids.

I understand that the 'normal' and 'fair' process is to assign the gains to the K-1s in the same proportion as the distributions. But I'm pretty sure that the IRS doesn't really care how it is assigned, as long as all the gains are accounted for and paid by someone.

So to keep things simple, I'd like to propose that the gains be split evenly across the 3 kids. This avoids sending K-1s to all the grand-kids, and them having to wait for the K-1s and also have their taxes slightly more complex. The 3 kids would need to do K-1's anyhow, so as long as they don't mind accepting a slightly higher tax burden (1/3rd of the total, rather than 1/4th of the total), which I think they will accept, then this seems worth the simplification.

Does anyone know if this is a problem? I assume as long as the IRS sees 3 K-1s that account for the gains, all is good?

-ERD50

Is the the total income for the estate in excess of the 1041 filing requirement (which if memory serves is $600)?

If not, then I don't think any K-1s need to be issued.

-gauss

 

[ERD50]

Thanks for the replies.

Yes, the total gains of the estate will somewhat exceed $600, so they will need to file.

My FIL's trust will be dissolved this year, and IIRC, in the final year all income is distributed to heirs, so it will all need to go onto K-1(s). I think that is done so a large estate won't get in an endless loop of having to retain some funds to pay taxes in April, and then having income in that year, stretching taxes out into that year - it would take several years to get rid of any excess required to make sure taxes could be paid.

Maybe we will retain the earnings in my MIL's estate, that probably won't be able to be completely settled this year. Gains are low enough, I'll look but probably no big amount of difference.

-ERD50