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Top 5 Mistakes We See in Estate and Trust Returns

At BBTA, we work on estate and trust returns for individuals and law firms across the country. These are the most common mistakes we correct, and avoiding them will save the trustee and trust valuable time and money.


1. Taxing income at the trust level

Trusts can choose to pass income and tax liability on to their beneficiary through distributions. This can mean the difference between paying tax at a 10% or 37% rate.

2. Not opting for QDT status

Many trusts can be classified as a Qualified Disability Trust, which enables them to not pay tax on the first $4,000 in income instead of the standard $100.

3. Poor timing of income and deductions

Trusts can reduce or eliminate tax liabilities by choosing to roll expense deductions paid in the first 65 days of one year back to the prior year’s tax filing.

4. Not having proper asset basis

Trusts that are funded from inheritance may be subject to a higher tax if the step-up basis for stocks isn’t properly calculated and if real estate appraisals aren’t performed.

5. Failing to meet payroll obligations

Not complying with federal and state payroll tax requirements for caregivers is the most costly error that a trustee can make, both for the trust and the trustee. Failure to file the various returns with all four agencies can result in fines, interest and levies.

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