essomd Asked October 2017
Filing Taxes for Parents and Trust?
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The situation is that my parents are now in skilled nursing. I manage their finances and their one asset, their home, is in a trust. Dad is a veteran and they both file jointly. They have disability, pension, SS, etc. Besides $$ going to medical care, that's it. It feels straight forward. This next tax season, I'll be doing their taxes for them. Anyone with experience or advice on how to file taxes for a situation like this? I feel like their taxes are fairly simple. But the taxes on the trust? I have no idea what to do. The house doesn't generate income. Hasn't been sold. It just exists in the trust.
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First question, do you have prior returns to review? I always look at the prior year and check to see if it makes sense and I can create the same return with the same numbers. If you are detailed oriented, you can probably do the 1040 joint. But healthcare deductions and the changes coming in tax code may not be so simple. And depending on how trust is set up, it may affect taxes.
The first trust return you do, the 1041, will be painful even with example already prepared. How are house expenses being paid? An income stream is sometimes set up to cover the expenses of taxes, repairs. Did you review trust docs? The 1041 is a different due date and additional forms from 1041 trust return are due to beneficiaries of the trust. Do you have state returns due for trust and personal taxes? If you want to do it all yourself, you can ; but I’d follow GA example and have it done once professionally so you have a template. If you are asking here, you really need some support that knows your local, state and federal regulations. Disclaimer that this is not tax advice specific to you. Doing it right the first time means less issues later if you miss something.
One thing I learned about 1041 is that they're great to induce sleep. I never worried about falling asleep when I read a 1041. Better than meds!
I finally decided to get help; called a number of accounting firms and found a small one that handled trusts. After they prepared the first form, I used it as a model and filed the following year 1041s on my own.
My sister's house was similarly held in trust. I assume that title was transferred from your parents' names to the Trust? That would have been part of the funding, and necessary for the home to "be in the Trust."
If there's no income being generated, the issue is a lot simpler. But the last return I filed was about 10 years ago and I just don't remember all the details. I do have a vague recollection of some aspects, but I wouldn't want to steer you astray.
One aspect of which you should be aware is a Schedule K-1 must be filed, showing apportionment to the beneficiary(ies) equally or in accordance with their percentage amounts, as detailed in the Trust. But other than filing them for each beneficiary, I just don't remember all the details. Those actually were the easiest part of the taxes.
It only cost me a few hundred dollars for the first professionally prepared return, and it was worth it.
GuestShopAdmin is a tax pro. She could offer more current and accurate information than I can. She usually posts on tax issues like these.