Economic Impact Payments: How Should Estates & Trusts Handle Payments?

This article contains information about the first round of Economic Impact Payments. Looking for more information about the second round of stimulus payments?

Many people are struggling to make ends meet these days due to the COVID-19 pandemic and related business shut-downs. Congress quickly recognized the economic issues to be faced by many Americans and passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act in late March. The CARES Act contains many economic stimulus provisions, one of which is the payment of so-called “economic impact payments” to individuals. These payments are actually tax credits to be claimed on 2020 tax returns (which will be filed in 2021), with the payment pursuant to such credits being accelerated so that individuals can receive the funds now. The IRS has already begun making these payments but new issues continue to arise. For example, there are numerous instances of checks being sent to deceased persons, with the recipients/holders of those checks being left with questions about what to do. Estates, trusts, and family members, friends, attorneys, etc. of deceased persons have to ask: What do we do if an economic impact payment check or direct deposit is received?

The CARES Act says economic impact payments are payable to “eligible individuals.” An eligible individual” is generally any U.S. citizen or U.S. resident alien. The payments are sent automatically to any eligible individual who filed a 2018 or 2019 Federal income tax return. The IRS has provided other methods for eligible individuals who did not file 2018 or 2019 tax returns to claim the payments. The economic impact payments are $1,200 for individual or head of household filers, and $2,400 for joint filers, in each case if the filer is not a dependent of another taxpayer and has a work-eligible Social Security number. Furthermore, eligible recipients will receive an additional $500 per qualifying child (generally, any child who is under the age of 17 and who was claimed as a dependent on the recipient’s most recent income tax return). The payments begin to phase out once an eligible individual’s adjusted gross income exceeds $75,000 ($150,000 for joint filers), with a total phase-out for those whose adjusted gross income is $99,000 ($198,000 for joint filers) or higher. The phase out is $50 for every $100 by which the individual’s adjusted gross income exceeds $75,000/$150,000.

The CARES Act specifically excludes estates and trusts from the definition of “eligible individual”. A trustee of a trust that receives an economic impact payment in his or her capacity as a trustee should return the money. The same is true for an administrator or executor of an estate and for a family member, friend, attorney, agent, etc. of a deceased individual who obtains possession of a payment sent for such deceased individual. Some envelopes containing paper checks now include a box on the outside of the envelope directing the person in possession to mark the box and place the envelope back in the mail if the payee is deceased.

But what about payments made to a deceased person that are directly deposited into a bank account? What about payments of $2,400 (or more if there are qualifying children) sent to a surviving spouse of deceased individual with whom such surviving spouse previously filed jointly? On May 6, 2020, the IRS finally provided instructions for those who need to return economic impact payment funds:

If the payment was a paper check that has not been cashed:

1. Write “Void” in the endorsement section on the back of the check.
2. Mail the voided check immediately to the appropriate IRS location.
3. Do not staple, bend, or paper clip the check.
4. Include a note stating the reason for returning the check.

If the payment was a paper check that has been cashed, or if the payment was a direct deposit:

1. Submit a personal check, money order, etc., immediately to the appropriate IRS location.
2. Make the check/money order payable to “U.S. Treasury” and write “2020EIP” and the taxpayer identification number (social security number, or individual taxpayer identification number) of the recipient of the check on the memo line.
3. Include a brief explanation of the reason for returning the economic impact payment.

If a single check for $2,400 or more is made payable to either a surviving spouse or a deceased individual with a surviving spouse, in both cases in which the spouses filed jointly in 2018 or 2019 and for which the surviving spouse is an eligible individual, the surviving spouse should first cash the check and then return $1,200 to the Treasury by following the second set of instructions above. If a direct deposit of $2,400 or more is made into an account held by or for a surviving spouse, the surviving spouse (or custodian of the account) should send $1,200 to the IRS by following the second set of instructions above. All remaining funds for which the surviving spouse is eligible can be kept by the spouse.

While the IRS instructions do not explicitly allow holders of a paper check to cash the check knowing it contains, in part, an ineligible payment, it does not make practical sense for the holder to send the entire payment back to the Treasury and then request that a new payment be issued. As long as the proper amount is timely returned to the Treasury pursuant to the appropriate set of instructions above, there should be no issues with cashing a check knowing that a portion of the funds were sent incorrectly. Certainly, any individual not entitled to any economic impact payment funds who receives a payment should return all of the funds pursuant to the appropriate set of instructions above.

Any Ohio resident returning to the Treasury economic impact payment funds from an already-cashed check or a direct deposit should send the money to:

Kansas City Refund Inquiry Unit

333 W Pershing Rd

Mail Stop 6800, N-2

Kansas City, MO 64108

For non-Ohio residents, the appropriate mailing address can be found here, under Question 41: https://www.irs.gov/coronavirus/economic-impact-payment-information-center#eligibility.

Please contact your Carlile Patchen & Murphy LLP attorney if you have any questions or need further guidance.