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living trust’s checking account. KPLP did not report this amount
on its 1998 return as a distribution or a guaranteed payment to
the living trust. From these funds, the living trust issued a
$10,000 check to each of the Korby sons and retained the
remaining $3,638. KPLP reported the interest earned on the U.S.
savings bonds as income on its 1998 Federal income tax return.
Austin and Edna’s joint Federal income tax return for 1998
was filed by Dennis as personal representative for each estate.
The 1998 return was the first return on which it was reported
that Austin and Edna were liable for self-employment tax on the
payments from KPLP. The living trust remained KPLP’s general
partner after Austin and Edna died. The living trust held the
same property from the spring of 1995 until Austin’s death, and
the living trust’s property was worth $116,097 on the date of
Edna’s death. Pursuant to the terms of the living trust
agreement, Austin and Edna’s funeral expenses and Austin’s estate
taxes were paid by the living trust. On September 1, 1999, KPLP
issued a check to the living trust for $19,500. On the same day,
the living trust paid estate taxes of $20,068 owed by Austin’s
estate.
The living trust agreement provided that upon the death of
the first of Austin or Edna to die, the living trust would split
into a marital deduction trust and a family trust. All of the
living trust property, less the amount necessary to use the
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Last modified: May 25, 2011