Legal Question in Tax Law in California

Re: 1041 Fiduciary return questions (in California)

You need to talk this over with a probate

tax attorney. You're not

asking the right questions is how I know. However,

I'll take a shot at some of your questions.

First, the 1041 you refer to is not that of an existing

or testamentary trust but is the probate estate's

tax return, right? Your questions were confusing

until I made that guess. Second, I assume that this is

the second to die of a married couple but I'm not very

sure. Is the estate taxable or for any other reason is

a 706 return due? Was the decedent a U.S. citizen?

Was there an estate plan prepared by an estate planning

attorney?

(1) Taxable interest for 11 of the 13 weeks which had accrued

but not been paid is "IRD", Income In Respect of a Decedent.

Check IRS publications for a fairly large volume of discussion

on that subject; there is an election to be made but it's

not the one you're thinking of! Sorry!

(How much interest are you talking about? What makes you think

that it'd be better to put it onto the finally return than

on the 1041?)

Individuals living use cash basis tax accounting always, by

the way, but there are complex rules for what constitutes

"receipt" which you might not expect.

(2) In a word, oversimplified, no. But I wonder if you're not

confused; why would a bank account be on the 1041?

Are you talking about the principle in the account?

CONTINUED ...

Re: 1041 Fiduciary return questions (in California)

CONTINUED.

(3) I don't trust your question. The survivor on jointly held property

is just not called a beneficiary; generally, a devisee or an heir is not

called a beneficiary either. Trust beneficiaries ARE called beneficiaries,

and real estate owned by a trust doesn't go through probate, so your

question is flawed. It is further flawed because you ask if the

estate or the beneficiary is the "legal" "owner", but lawyers make

a distinction between "beneficial" ownership and "legal" ownership

(and where they are not the same party, it is called a split title;

this is USUALLY the case with property that is held by trust or by

an estate) so your question is too confusing again. I guess if I thought

about it I could figure out what you really want to know, but my answer

would use terms that I'm not sure would be clear to you!! Sorry.

(4) Here is where I'm concerned that you are talking about a 706 tax return

and not a 1041; how could a house be sold "at a loss"? As a general simple

rule, the original tax basis in a home is lost / ignored and the new tax

basis, if the house passes through probate, is

"stepped up" (or down) to the new fair market value at the date of death

(or in some cases 6 months thereafter or in certain other cases, the

actual sale price itself) ... but we're into a new discussion which I

can't complete here.

(5) What uses were made of the appraisal given by the probate referree?

We can talk, if you want to call me at (617)527-0050, but you probably

should have a local attorney upon whose advice you can rely. Tell me

the city or town you live in and the one the decedent died in, and I will

find you a fairly good-sized list of attorneys in your area who will

know ALL the answers to these questions! I belong to a professional

organization with a lot of very qualified tax / probate lawyers who work

in California.

Re: 1041 Fiduciary return questions (in California)

#2. Yes. Sad but true..Also..you really have to look into filing IRS Form 706 (Fed. eState tax return) if the estate is over $625,000...) Failure to do so could cause massive interest and penalties...good luck!!