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Tax liability of a family Trust.
Anonymous2 views3 answers
My grandmother died in 1999. A year before, she and I established a Trust to help manage her affairs. Her estate, including proceeds from the sale of her house, was passed along to her two daughters, who are also now deceased. The size of her estate was, to my understanding, well below any inheritance tax. I recently discovered some stock and a small amount of cash being held as unclaimed by the State of California. The total for both stock and cash is well under $1,000.00. The Controller's Office is asking for a Final Tax return and K1 form for the Trust. Am I on solid ground telling the State that no tax return was filed since it was understood that her estate had no taxable income?
Never tell the state how to handle the tax returns.Prepare one showing a minimum of assets and how it was distributed. Some states and the IRS require returns even when no tax is due.
Discuss this issue with a professional tax preparer.
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LEGAL DISCLAIMER
Mr. Sarno is licensed to practice law in NJ and NY. His response here is not legal advice and does not create an attorney/ client relationship. The response is in the form of legal education and is intended to provide general information about the matter in question. Many times the questioner may leave out details which would make the reply unsuitable. Mr. Sarno strongly advises the questioner to confer with an attorney in their own state to acquire more information.
I presume that Mr. Sarno did not mean to imply that you should prepare an inaccurate income tax return. You are required to certify under penalty of perjury that the information you report is accurate to the best of your knowledge and belief. If you cannot do that, then you can't do the tax return.
If the stock was not held in the name of the trust, then you might be able to file an "Affidavit of Small Estates" under section 13100 of the California probate code. With that, you might be able to avoid the requirement of a tax return (you'll need to ask someone at the Controller's Office).
You're confusing "apples and oranges" regarding inheritance taxes and the need to file trust tax returns. "Inheritance taxes" (actually, estate taxes) relate to the amount of assets a person owned at the time of their death. If the stock your grandmother owned generated any dividends, or if the cash generated any interest, then you need to file annual income tax returns. The state is asking for "K1s", which are associated with trust income tax returns, so you need to figure out whether any income has been generated on any of the trust's assets since your grandmother's death.
If the trust assets were distributed to your mother and your aunt, then the next thing the state might ask you for is proof of their deaths and proof that you are the one who is entitled to receive their estates.
You might want to think about whether it's worth it (on the other hand, I personally think that sometimes the State Controller's Office hopes you'll decide it isn't worth it!).
Good luck.
This information is not intended to substitute for professional legal advice and does not create an attorney-client relationship. You should accept legal advice only from a licensed legal professional with whom you have an attorney-client relationship.
When I posted a "minimum of assets" I meant to say what the actual assets`were, but were a small amount in actual value. In most states (even Cal!) tax laibility does not come in until you reach a certain floor.
LEGAL DISCLAIMER
Mr. Sarno is licensed to practice law in NJ and NY. His response here is not legal advice and does not create an attorney/ client relationship. The response is in the form of legal education and is intended to provide general information about the matter in question. Many times the questioner may leave out details which would make the reply unsuitable. Mr. Sarno strongly advises the questioner to confer with an attorney in their own state to acquire more information.
