Two Elections That Trustees and Executors Should Consider Now
Fiduciaries can make certain elections after the year-end that could affect the prior year tax returns for the trusts and estates, as well as those of the beneficiaries. These elections must be made on or before the 65th day after the close of the taxable year, which is Thursday, March 5, 2020, for the year ending December 31, 2019.
663(b) Election to Treat Distributions as Made in the Prior Tax Year
A fiduciary can elect to treat any part of a distribution made within 65 days after the end of a tax year as made on the last day of the previous tax year. This election is made by checking the appropriate box on Form 1041. To make an informed decision regarding this election, the fiduciary should compute the fiduciary accounting income, distributable net income, and taxable income. A determination of the impact of additional distributions on these amounts, as well as the beneficiary’s tax situation, should be considered before making the election. Once the election is made for a tax year, it is irrevocable.
Election to Treat Certain Payments of Estimated Tax as Paid by the Beneficiary
A fiduciary may elect to treat any portion of a payment of estimated tax made by a trust as a payment made by a beneficiary of the trust. The executor may also make this election of an estate in a tax year that is reasonably expected to be the last tax year of the estate. The election is made by filing Form 1041-T (Allocation of Estimated Tax Payments to Beneficiaries). The amount elected is treated as distributed to the beneficiary on the last day of the prior taxable year, and paid by the beneficiary as an estimated payment on January 15 of the following year.
If you have questions about the elections outlined above or are looking for assistance with an estate planning issue, Klatzkin can help. For additional information, call us at 609-890-9189 or click here to contact us. We look forward to speaking with you soon.