The IRS and Trusts

[Midpack]

My Dad passed away last year, and he managed to put everything in a trust for my sister and I. So closing out his estate was pretty easy, all the remains is selling his house. But...

We filed his last federal taxes, Form 1310 etc., and turns out the IRS owes him $678. As far as we can tell (incl consulting Dad's trust attorney), there is no way they will distribute that refund to his trustees unless it goes through probate. That's way more trouble and cost than $678, so I guess he/we'll be kicking in to Uncle Sam this year. The IRS always gets theirs. Que sera, sera...

 

[pb4uski]

Did he have a will?

If so, did the amount subject to probate fall within the small estate limits and not be subject to probate in his state? If so, in theory the named executor in the will should be able to file for the refund and then distribute to the beneficiaries named in the will. So the answers to Part II would be Yes, No, No and Yes.

IOW, the trust isn't involved at all.

I don't see how they could deny paying a refund in those circumstances, especially given the example in the Form 1310 Instructions:

Example. Your father died on August 25. You are his sole survivor. Your father did not have a will and the court did not appoint a personal representative for his estate. Your father is entitled to a $300 refund. To get the refund, you must complete and attach Form 1310 to your father’s final return. You should check the box on Form 1310, line C, answer all the questions in Part II, and sign your name in Part III. You must also keep a copy of the death certificate or other proof of death for your records.

 

[RunningBum]

Another reason why refunds should be avoided.

 

[Midpack]

Did he have a will?

If so, did the amount subject to probate fall within the small estate limits and not be subject to probate in his state? If so, in theory the named executor in the will should be able to file for the refund and then distribute to the beneficiaries named in the will. So the answers to Part II would be Yes, No, No and Yes.

IOW, the trust isn't involved at all.

I don't see how they could deny paying a refund in those circumstances, especially given the example in the Form 1310 Instructions:

I may be mistaken, but he had a living trust and a pour over will. Nothing has gone through probate so far, and his attorney hasn’t told us otherwise.

 

[MichaelB]

My Dad passed away last year, and he managed to put everything in a trust for my sister and I. So closing out his estate was pretty easy, all the remains is selling his house. But...

We filed his last federal taxes, Form 1310 etc., and turns out the IRS owes him $678. As far as we can tell (incl consulting Dad's trust attorney), there is no way they will distribute that refund to his trustees unless it goes through probate. That's way more trouble and cost than $678, so I guess he/we'll be kicking in to Uncle Sam this year. The IRS always gets theirs. Que sera, sera...

Why can’t the refund check be in your fathers name?

 

[pb4uski]

I may be mistaken, but he had a living trust and a pour over will. Nothing has gone through probate so far, and his attorney hasn’t told us otherwise.

Ah, I see... I think the answer is still the same...

1. The decedent has a will... yes
2.a. Has the court appointed a personal representive for the estate?... no
2.b. Will one be appointed?.... no
3. Will the person claiming the refund pay it out according to laws of the state where the decedent was a resident? yes

3. is being a bit cute.. but if the decedent has a pour-over will then state law would require that the refund be paid to the trust consistent with the pour-over will but at the same time the pour-over presumably is under the threshold for probate in your state.

Then if they send a check out in your name then either endorse it over to the trust and deposit it in the trust's account... or if that can't be done then deposit it and then write a check from the account it was deposited in to the trust account.

Is it worth it for $678? I'll let you decide.

 

[steelyman]

This sounds very similar to a situation that applied to my dad. The county was DuPage (Illinois) and I recall “small estate” rule applied.

 

[CaliKid]

You can do small estate affidavit signed by the individual benes or the trustee of the trust. Either way. They should pay it right now. Would not require full probate. Seen this done many times. I think the IRS even has a small estate form to use.

 

[ERD50]

I wasn't going to comment since you included "As far as we can tell (incl consulting Dad's trust attorney), "...

but it didn't sound right to me, and most posters here seem to agree that this should not be a problem. If you are trustee/executor for the estate, and you didn't need to file probate, it seems this should be easy for you to just deposit the check. The check should be made out to your father's estate, since it is his tax return and refund, so trustee of the estate handles it.

Makes me wonder about why the attorney said what they said?

edit - the "small estate" mentioned by others sounds like the missing piece of the puzzle. This is what we did for MIL, everything else was in trust. In IL, it's just a document stating that the estate subject to probate is less than $100,000. It doesn't get filed anywhere, you just fill out the form and sign it as executor. But a bank might ask for that (at least for a withdrawal) or the full probate documents. So far, we have not needed to use it, but DW also had a checking account that was JROS with her Mom, so deposits to that might not be a problem anyhow.

"small estate' rules are set by the state though. So "it depends".


-ERD50

 

[RobbieB]

I didn't have these problems either. I kept pops trust account open at the bank and signed all his checks as him - deceased, me - trustee

 

[ncbill]

Even small estates can have not-so-small fees.

Here the above apply to estates up to $20,000...but costs $120 vs. $150 filing fee for larger estates.

The only asset outside the trust is my relative's old car...tax value ~$800.

Fortunately there is a form at the DMV that lets me transfer it without opening an estate once all the heirs sign it.

 

[Midpack]

Thanks everyone, still in IRS limbo.

My sister did file a 1040 on my Dad's behalf and a 1310. We have kept the trust checking account open, and we both have full access to it for deposits or withdrawals (until the house sells). Even though my sister checked 1310 Part I C, the IRS told her they would not send her the refund check because she was not a court appointed personal representative and she'd have to enter probate which we don't plan to. My sister and I were both named co-successor trustees in the trust doc, and my sister is the executor in the pour over will. My sister has appealed the IRS decision and I guess we'll see what happens.

I've found small estate affadavits for several states including TX where my Dad and sister live(d) - but I am not understanding what that has to do with federal taxes?

Again, maybe the IRS will send her the refund after all, we don't have that answer yet. Somehow I suspect if he had an amount due, they wouldn't have had any problem accepting a check from my sister for the amount due with no verification of anything...

 

[ERD50]

Thanks everyone, still in IRS limbo.

My sister did file a 1040 on my Dad's behalf and a 1310. We have kept the trust checking account open, and we both have full access to it for deposits or withdrawals (until the house sells). Even though my sister checked 1310 Part I C, the IRS told her they would not send her the refund check because she was not a court appointed personal representative and she'd have to enter probate which we don't plan to. My sister and I were both named co-successor trustees in the trust doc, and my sister is the executor in the pour over will. My sister has appealed the IRS decision and I guess we'll see what happens.

I've found small estate affadavits for several states including TX where my Dad and sister live(d) - but I am not understanding what that has to do with federal taxes?

Again, maybe the IRS will send her the refund after all, we don't have that answer yet. ...

I just glanced at 1310, and I think maybe you should have checked 1310 Part 1 B. Your sister is the executor of the will.

emph mine

Court-appointed or certified personal representative (defined below). Attach a court certificate showing your appointment, unless previously filed (see instructions).



Personal Representative: For purposes of this form, a personal representative is the executor or administrator of the decedent’s estate, as appointed or certified by the court. A copy of the decedent’s will cannot be accepted as evidence that you are the personal representative.

TX may be different, but my understanding from how it works in IL, is that if the estate went through probate, you have the court documents for that. If you didn't need probate, you go through the 'small estate' process, and in IL it is just a form that you personally fill out (maybe notarized?) - it does not get filed in any court. I suspect that is what the IRS is looking for. You could also maybe ask someone in the County in TX what is accepted as "as evidence that you are the personal representative". I found the people in our County probate/will department to be very helpful.

Though I agree, Part 1 B/C seem to overlap, and the differences are confusing. I think it is a shame that forms/instructions like this are not crystal clear for people who may only do this once in their life.

... Somehow I suspect if he had an amount due, they wouldn't have had any problem accepting a check from my sister for the amount due with no verification of anything...

Sure, but that is completely different. You would also accept a check for payment from anyone claiming to represent the person that owed you the money, as long as the check cleared. But would you make a payment to someone who claimed to represent the person you owed the money to, w/o some real proof that that money was going to the right entity? The IRS has to be sure the right person is getting the money.

-ERD50

 

[Midpack]

I just glanced at 1310, and I think maybe you should have checked 1310 Part 1 B. Your sister is the executor of the will.

Not sure how she could have checked B given the instructions. We don’t have a cert to attach and the PR definition says a Will isn’t acceptable.

A Surviving spouse requesting reissuance of a refund check (see instruct
B Court-appointed or certified personal representative (defined below). Attach a court certificate showing your appointment, unless previously filed (see instructions).
C Person, other than A or B, claiming refund for the decedent’s estate (see instructions). Also, complete Part II.

Personal Representative
For purposes of this form, a personal representative is the executor or administrator of the decedent’s estate, as appointed or certified by the court. A copy of the decedent’s will cannot be accepted as evidence that you are the personal representative.

Specific Instructions

Line B
Check the box on line B only if you are the decedent’s court- appointed personal representative claiming a refund for the decedent on Form 1040X, Amended U.S. Individual Income Tax Return, or Form 843, Claim for Refund and Request for Abatement. You must attach a copy of the court certificate showing your appointment. But if you have already sent the court certificate to the IRS, complete Form 1310 and write “Certificate Previously Filed” at the bottom of the form.
Line C

 

[MichaelB]

Thanks everyone, still in IRS limbo.

My sister did file a 1040 on my Dad's behalf and a 1310. We have kept the trust checking account open, and we both have full access to it for deposits or withdrawals (until the house sells). Even though my sister checked 1310 Part I C, the IRS told her they would not send her the refund check because she was not a court appointed personal representative and she'd have to enter probate which we don't plan to. My sister and I were both named co-successor trustees in the trust doc, and my sister is the executor in the pour over will. My sister has appealed the IRS decision and I guess we'll see what happens.

I've found small estate affadavits for several states including TX where my Dad and sister live(d) - but I am not understanding what that has to do with federal taxes?

Again, maybe the IRS will send her the refund after all, we don't have that answer yet. Somehow I suspect if he had an amount due, they wouldn't have had any problem accepting a check from my sister for the amount due with no verification of anything...

If the appeal fails, you and your sister might want to get your Senator invokved.

 

[ERD50]

Not sure how she could have checked B given the instructions. We don’t have a cert to attach and the PR definition says a Will isn’t acceptable.

That's the role of the "small estate affidavit" (at least in IL).

https://www.illinoislegalaid.org/legal-information/using-small-estate-affidavit

1. Collect information

To fill out a small estate affidavit, you will need a list of any unpaid debts owed by the decedent. For example, the decedent might owe money for medical bills and credit card bills. You will also need a list of all the property and assets in the estate.

Remember that you can only use a small estate affidavit if the estate has no more than $100,000 in it.

4. Use the small estate affidavit

You can show the affidavit to any person, bank or corporation that has the property of the estate. The bank, person, or corporation must give away the property the way the affidavit says. Once the property is transferred, the person who gave you the property cannot be sued.

The person or corporation that has the decedent's property must turn over the property after you give them the small estate affidavit. If they don’t, you can file a civil court claim to get the property.

-ERD50

 

[Sunset]

Won't you have to have probate to sell the house or is it in the trust as well.

I avoided probate for my Mom, until it came time to sell the house, then we needed probate anyhow.

 

[Midpack]

That's the role of the "small estate affidavit" (at least in IL).

https://www.illinoislegalaid.org/legal-information/using-small-estate-affidavit

I read the link thanks. It wasn't clear to me what's included in the estate. If it includes the property and assets in the trust, we don't qualify. So far the assets outside the trust are ZERO so if the estate is whatever is outside the trust we would qualify as a small estate?

Won't you have to have probate to sell the house or is it in the trust as well.

I avoided probate for my Mom, until it came time to sell the house, then we needed probate anyhow.

The house is listed 1) in the trust.

I'm still mystified how it's possible, but absolutely everything was in the trust, and the pour over will would cover anything that wasn't. The trust was amended 3 times as Dad with his attorney wanted us to avoid probate entirely. Sounds to good to be true, but we've checked with Dad's attorney (who wrote up both docs) several times since Dad passed away last Oct.

 

[PatrickA5]

As executor, I filed my dads last tax return (and 1310) and just had the small refund direct deposited to my bank account. Everything was handled outside of probate and he didn't have a trust.

 

[ERD50]

I read the link thanks. It wasn't clear to me what's included in the estate. If it includes the property and assets in the trust, we don't qualify. So far the assets outside the trust are ZERO so if the estate is whatever is outside the trust we would qualify as a small estate?


The house is listed 1) in the trust.

I'm still mystified how it's possible, but absolutely everything was in the trust, and the pour over will would cover anything that wasn't. The trust was amended 3 times as Dad with his attorney wanted us to avoid probate entirely. Sounds to good to be true, but we've checked with Dad's attorney (who wrote up both docs) several times since Dad passed away last Oct.

I was curious, looking at TX law, it seems different in some ways to IL law. But in IL yes, if everything beyond $100,000 is in a trust, there is no probate process at all. No mystery, that's the law. Not sure of the details of a 'pour over' will, but I think one of the protections of a trust is that everything is titled in the name of the trust, so the holders of any $ or property will be asking for those docs to assure you have authority. To be honest, I don't really see how this provides much protection.

What I found from TX sites, one of the conditions for their "small estate" term is that there is no will, so that's not for you. But it sounds like they have some other document, an Affidavit of Heirship that sounds like it applies. If your lawyer charges by the hour, do some searching or call the county dept.

-ERD50

 

[CaliKid]

Just fill out small estate affidavit and return check with affidavit to IRS. Should be no problem. The IRS check is just like any other check. It really should be VERY easy.

 

[samcat]

Can they issue the check to your dad and then you deposit into his old bank account? My bank will do that for one off transactions.

 

[Gill]

I agree that a small estate administration seems to be the answer. By any chance did you have any savings bonds on which you could accrue the interest on the final return thereby creating a balance due instead of a refund?
Gill

 

[Midpack]

Re: the small estate affidavit - I posed the question earlier, but I’ll ask more directly this time re: a small estate affidavit.

From what I can tell, ALL the assets including the property and assets in the revocable trust would be included in the gross estate. If so, we simply don’t qualify as a small estate. The only way we might qualify as a “small estate” is if the estate excluded the trust assets. I found several links that suggest the former (one below) and none that suggest we can exclude the trust assets.

We still haven’t heard from the IRS regarding my sisters informal appeal, fingers crossed.

Gross Estate

The federal estate tax is a levy on the distribution of a decedent’s assets. Only those assets that the decedent owned and controlled at the time of his death are taxable. These assets are included in the gross estate. To form a trust, the grantor must transfer his ownership in the trust property to the trustee. As a result, it would appear that the trust property would not be included in the gross estate. However, since the decedent retains the ability to regain the assets in a revocable trust, the property he donated to the trust is included in his estate. These assets are included in the estate under what is known as “the general rule of inclusion.”

https://info.legalzoom.com/revocable-trust-included-gross-estate-22287.html

 

[ERD50]

Re: the small estate affidavit - I posed the question earlier, but I’ll ask more directly this time re: a small estate affidavit.

From what I can tell, ALL the assets including the property and assets in the revocable trust would be included in the gross estate. If so, we simply don’t qualify as a small estate. The only way we might qualify as a “small estate” is if the estate excluded the trust assets. I found several links that suggest the former (one below) and none that suggest we can exclude the trust assets.

We still haven’t heard from the IRS regarding my sisters informal appeal, fingers crossed.

https://info.legalzoom.com/revocable-trust-included-gross-estate-22287.html

I think you are confusing the estate that is subject to Federal Estate Tax, and settling the estate as defined by state probate laws.

For example, you can't circumvent Federal Estate Tax by just holding assets in a revocable trust. To the Feds, that is still money that belongs to 'you' (while you are alive). That is also consistent with how you do your FIT for a revocable trust while you are alive - the trust is just treated as 'you', everything has your SSN. The trust only gets its own identity after death (the EIN in place of SSN).

But that's different from the executor controlling the estate funds during distribution of the estate - that is regulated by state law. And it appears to me that the Affidavit of Heirship that I mentioned earlier is what you should investigate.

-ERD50