How do we report income for someone who passed away?

March 20, 2006

From:  Dan
Date:  Sun, 19 Feb 2006

Hi Michael,

My wife's mother passed away in May, 2005. My wife was the only beneficiary of her revocable living trust. My wife and I are setting up our own revocable living trust and transferring out assets to it.

We received a 1099 for my mother-in-law's brokerage account, under her social security number, for 2005. When we file income tax returns for 2005, do we report the income on her form 1040, even though part of the income was received after she passed away?

What about income received during 2006 and reported on Forms 1099 under her social security number?

We are thinking about moving to Canada. Can you help with tax planning for this move?

Thanks in advance,
Dan

Answer

Date:  Mon, 06 Mar 2006

Hello Dan,

Usually I suggest that people get help from a tax return preparer when reporting information relating to a decedent.

Since your wife is presumably the trustee and sole beneficiary of the trust after her mother's death, any income and deductions relating to her mother after death will be reported on your wife's (presumably joint with you) income tax returns.

To leave a trail for the IRS you can issue "nominee" Forms 1099 from your mother-in-law to your wife.

The distribution of property from her mother's trust to your wife is not taxable income. If your mother-in-law had more than $1.5 million of assets, a Form 706 (Federal estate tax return) should be filed.

Even if Form 706 isn't filed, your mother-in-law's assets should be listed and valued to establish tax basis when they are sold in the future.

Good luck!
Mike Gray

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