IRC Section 645 Elections: Filing a Combined Qualified Revocable Trust and Estate Income Tax Return

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Tuesday, February 28, 2023

Recorded event now available

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Course Materials

This course will explain how making the election under IRC Section 645 can significantly reduce the tax filing burden for practitioners and lower beneficiaries' tax obligations.

Description

At death, a revocable living trust becomes irrevocable, creating the need for filing a trust return, Form 1041. Section 645 provides an opportunity to combine the filing of the trust return with the estate income tax return. When properly elected, the trust's income and expenses are reported along with the estate's, using the estate's year-end rather than the trust's required calendar year-end. Since estates often elect a fiscal year-end based on the decedent's date of death, this can significantly delay the filing requirement and paying the tax obligation.

Making the election allows many small estates to file a first and final Form 1041. Making the election, however, is irrevocable. While this election can provide significant flexibility, advisers must be aware of the potential tax consequences of failing to properly allocate income and distributions between the estate and its component trust. Also, the election terminates and, at the end of the termination period, beneficiaries could receive two K-1s, sometimes negating any tax benefit received from making the election.

Still, using estate guidelines for estimated tax payments and particularly charitable deductions can reap substantial tax savings for the beneficiaries of an estate.

Listen as our panel of trust and estate experts explains the caveats and considerations of making a Section 645 election.

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Outline

  1. What is a qualified revocable trust?
  2. Section 645: making the election
  3. Due dates
  4. Filing the combined Form 1041
  5. Benefits
    1. Charitable contributions
    2. S corporation stock
    3. Estimated tax payments
    4. Certain passive losses
    5. Other benefits
  6. Caveats
    1. Termination
    2. Separate share rules
    3. Other caveats
  7. Illustrations

Benefits

The panel will discuss these and other important topics:

  • Types of trusts that qualify as QRTs eligible to make a Section 645 election
  • Applying the "separate share" rule to DNI calculations and allocations between the QRT and the estate after the election
  • Post-mortem tax planning strategies present with a Section 645 election
  • Mechanics of making the election with initial income tax filing

Faculty

Doyle, Jere
Jeremiah W. (Jere) Doyle, IV
Senior Vice President
Bank of New York Mellon

Mr. Doyle provides clients with integrated wealth management advice on how to hold, manage and transfer their...  |  Read More

Fukuto, Erin
Erin Fukuto, CPA, MST
Partner
Raimondo Pettit Group

Ms. Fukuto heads the firm’s estate, gift, and trust services. She specializes in income tax and estate planning...  |  Read More

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