Trust owned annuity death distribution & withholdings
I have a client that had a variable annuity with her revocable trust as owner (tax ID of the trust is the clients social security number) and her 3 children as beneficiaries. The client passed away in 2008 and 2 of the 3 beneficiaries took their lump sum distribution. One of the beneficiaries had state and federal taxes withheld from her distrubtion. The annuity company issued a 1099 in the Trust’s name for the distribution. The annuity company will not amend the 1099 or distribute the withholding to the beneficiary because we have crossed tax years. The CPA involved indicated he can transfer the tax liability to the beneficiaries, but does not know what to do with the withholdings. The deceased owner will get the benefit for the withholdings even though the beneficiaries received the funds and the tax liability. Does anybody have any suggestions of how to remedy this situation?
Permalink Submitted by mk foss on Wed, 2009-03-11 16:50
I had a similar situation. Annuity was owned by a trust (which had an EIN and was irrevocable). We filed Form 1041 showing the distribution and passed the withholding out to the beneficiaries showing Schedule K-1. This was in 2006, return was extended and filed in August 2007. In October 2008, taxpayer was billed for additional tax because they couldn’t find the withholding. We sent a letter explaining attaching copies of original 1099r and Schedule K-1. We haven’t heard anything yet so we’re hoping it’s resolved.
I wonder if they’d correct the 1099R if you applied for a trust EIN. That would allow the taxes to be passed out on Schedule K-1 but you’re likely to have follow up correspondence.