Trust (& Estate) Returns – Extended Due Dates

Trusts (and calendar year estates) on extension are due two weeks later this year than last year.

Back in 2015, the Surface Transportation and Veterans Health Care Choice Improvement Act (H.R. 3236) (“the Act”) made material changes to tax return due dates. Specific to the fiduciary income tax arena was the change in the permitted extension period. Previously, extensions granted to trusts and estate were for 5 months; now extensions are for 5 1/2 months. This change is effective this year; specifically for tax years beginning after 12/31/2015, which means 2016 tax returns which are due in 2017.

Treasury has recently issued updated regulations (T.D. 9821) to conform to the time period per the Act (see T. Reg. §1.6081-6T(a)(1)).

The IRS provided an extension form last winter (Form 7004) that provided for the 5 1/2 month extension; however the regulations were not updated until last month (7/18/2017).

Actually, trusts (and calendar year estates) get a few extra days this year: because 9/30/2017 falls on a Saturday, returns can be timely filed on Monday 10/2/2017.


Final Misc. Itemized Deduction Regulations

The IRS has issued, effective today, final regulations for trusts and estates to follow on the proper treatment of expenses subject to the 2% floor for miscellaneous itemized deductions.


Individuals and fiduciaries must reduce certain expenses, and not deduct the full amount, under IRC §67(a). These expenses include tax preparations fees, professional dues, home office expenses, and investment costs. IRC §67(e) says that expenses incurred by a trust are not limited if they “would not have been incurred if the property were not held in such trust or estate”. There has been must discussion about what expenses “would not have been incurred”.

The issue was litigated and reached the US Supreme Court who said (in 2008) that investment advisory fees incurred by trusts ARE subject to the 2%-floor limitation. Around that time, the IRS released temporary regulations regarding the deduction of certain expenses by trusts and estates. Those regulations are final and effective as of last Friday (May 9, 2014).


The final regulations confirm that trusts and estates must subject expenses to the 2%-floor limitation any miscellaneous itemized deduction which “commonly or customarily would be incurred by a hypothetical individual holding the same property” [see Reg. §1.67-4(a)].

The regulation’s next section elaborates on the meaning of “commonly” and “customarily”. It discusses costs considered “ownership costs” (which are generally subject to limitation since an individual would incur the same costs); “tax preparation fees” (which EXCLUDE from limitation the cost of estate tax returns, all fiduciary income tax returns, and a decedent’s final Form 1040); “investment advisory fees” (which are generally subject to limitation, except for advice specifically identifiably as not likely to be incurred by an individual); and “appraisal fees” (which exclude from limitation the costs associated with appraisal’s for an estate’s or trust’s income tax return, or a GST tax return).

Other costs which are fiduciary in nature are not subject to the limitation; these include probate court fees and costs; fiduciary bond premiums, and other costs listed in the regulation. Not mentioned, but not subject to limitation, are trustees fees.

Bundled Fees

Finally, the regulation addresses the problem of bundled fees. If a trust or estate pays a single fee for services which are subject to limitation and services which are not subject to limitation, then the single fee must be separated and the appropriate part made subject to the limitation. The regulation permits any reasonable method of allocation to divide the single fee.


The final regulation apply to tax years beginning on or after May 9, 2014. Previously issued (temporary) regulations have been removed. IRS Notices issued in 2008, 2010 and 2011 have been superseded by these final regulations.

See: TD 9664

Domestic vs. Foreign: Asset Protection Trusts

Sam Phillips at Donlevy-Rosen & Rosen, P.A. discusses the differences between Domestic Asset Protection Trusts (DAPTs) and Foreign Asset Protection Trusts (FAPTs).

A battle is raging between US-based attorneys over the use of Domestic Asset Protection Trusts (DAPTs) or their offshore counterparts (Foreign Asset Protection Trusts or FAPTs). Fifteen states (and counting) have enacted some form of asset protection trust legislation, but the efficacy of these DAPTs has been called into question since inception.

Gerry W. Beyer (of the Wills, Trusts & Estates Blog) reports that this was a focus of the 48th Annual Heckerling Institute on Estate Planning (held last month in Miami, FL).

Link: “Domestic Asset Protection Trusts Can Fail” says Estate Planning Expert

Are Self-Settled Special Needs Trusts on the Horizon?

Rich Shapiro notes that two Representatives have recently introduced legislation (H.R. 2123)  to permit self-settled special needs trusts.

Special needs trusts allow a physically or mentally disabled beneficiary to draw from the trust for personal expenses, while still qualifying for government benefits (e.g. Medicaid). They are generally created by family members or by a court, to hold assets from a personal injury settlement or an inheritance.

The proposed legislation (which has bi-partisan support) will allow mentally competent disabled persons to create their own special needs trust, without the burden and cost of involving family members or the courts. (Note: the burden and cost of an attorney will still be required to create the trust; be sure to use one with knowledge of special needs trusts.)

Via NY Estate and Wealth Planning blog