Preneed: A Pandora's Box of Problems
We continue our discussion of the composite Federal Form 1041QFT with a post about the individual account statement.
With the composite return, income and expenses are allocated to the individual preneed account and taxes are computed at that level rather than at the trust level. To allow the IRS to test the composite tax liabilities,…
There are two methods for preparing a Federal Form 1041QFT. One method has the trustee applying the QFT tax rate schedule to the preneed trust’s net income. For larger preneed trusts, this method will likely trigger the highest tax rate (37%). The other method is called the composite return, where trust income and expenses are…
Tax Code Section 685 has now been law for 21 years, and this marks our 20th year of preparing the Qualified Funeral Trust return. (And more specifically, the composite QFT return) The QFT return was meant to simplify income reporting for a trust that has hundreds, or even thousands, of contract beneficiaries. Yet, we…
The Illinois Department of Revenue made a revision to Schedule M of the 2014 IL-1041 form that may go unnoticed by many trust tax preparers. The change is meant to clarify that preneed accounts established pursuant to the Illinois Funeral or Burial Funds Act may take an adjustment that will eliminate the preneed trust’s state…
In has been almost twenty years since the Balanced Budget Act of 1995 introduced the concept of a simplified tax return for preneed trusts. Initially, the “Qualified Funeral Trust” concept called for a flat 15% tax on accounts with contributions of $5,000 or less. A conference committee succeeded in getting a higher contribution limitation ($7,000)…
Tax day is only a week away, and preneed trust returns will look a little different this year. As we reported back in December, the IRS took the position that preneed trusts are subject to the Medicare Tax used to fund the Affordable Health Care Act. Accordingly, Federal Form 1041QFT now requires the reporting of…
For many Illinois funeral homes, April 15th served as a bitter reminder of Merrill Lynch and the financial losses suffered by the IFDA master trust. The final Merrill Lynch settlements (approximately $41 million) were received in 2012, and taxes had to be paid on those funds this past tax day. Funeral directors have questioned how…