Form 1041 "Initial" vs "Final" return for an Estate

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Topic Author
Wonderdog
Posts: 3
Joined: Wed Jul 04, 2018 12:56 pm

Form 1041 "Initial" vs "Final" return for an Estate

Post by Wonderdog »

Greetings,

I am the executor for my aunt and uncle's estates and the trustee of their trust.

My aunt died in May of 2022. My uncle died in September of 2022.

Before my uncle passed, I tried to get all of his assets into their trust.

I was unsuccessful.

He had a sizeable amount stock from an employee purchase plan that did not get registered with the trust.

Because the stock was registered in his name (and SSN), I received dividend checks made out to him during 2023. These were deposited into the account I set up for the Trust after my uncle died. I received a 1099-DIV for my uncle for 2023.

For multiple reasons, getting through probate took a very. long. time.

I was able to take possession of the stock, sell it and deposit the proceeds into the trust account earlier this year, before any dividend was awarded for 2024.

At this point, my uncle's estate has no assets, nor do I expect his estate to earn any income in 2024. On this basis, can I say that the 2023 IRS Form 1041 return is the "Final" return of the estate? Or, because the estate held assets in 2024 (before I sold the stock), do I need to file a 2024 return in 2025? The share price on the day I sold the stock was less than the share price on the day my uncle died, so there won't be a gain there.
CuriousGeorgeTx
Posts: 359
Joined: Mon Dec 14, 2015 4:59 pm

Re: Form 1041 "Initial" vs "Final" return for an Estate

Post by CuriousGeorgeTx »

Wonderdog wrote: Mon Apr 01, 2024 8:46 pm The share price on the day I sold the stock was less than the share price on the day my uncle died, so there won't be a gain there.
Then you will have a loss in 2024 that the estate can distribute on a K-1 to the beneficiary of the trust (which it sounds like is you).
secondcor521
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Joined: Wed Sep 10, 2014 4:11 pm

Re: Form 1041 "Initial" vs "Final" return for an Estate

Post by secondcor521 »

Holding assets doesn't mean the estate has a filing requirement. Typically the estate only has a filing requirement if it has income above the exemption amount ($600 I think).

As the previous poster mentioned, you can report the capital loss on a 2024 1041 and then pass it through to the beneficiary/ies on a K-1. If it's significant, I would probably go through the filing process to do so.

If you'd rather not bother with the capital loss, then unless there is something else going on with the estate, you could skip filing a 2024 1041. In theory I suppose you should have then marked the 2023 1041 final, but I don't know how much the IRS cares if that box is properly checked.
HomeStretch
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Joined: Thu Dec 27, 2018 2:06 pm

Re: Form 1041 "Initial" vs "Final" return for an Estate

Post by HomeStretch »

Are you planning to prepare the Form 1041 or will you have the Estate attorney or tax accountant do so?

The Estate needs to file a Form 1041 for any tax year where the Estate had income of $600+. The Estate’s tax year can be a fiscal year or a calendar year. The Estate elects its year when it files its first Form 1041.

Has the Estate filed any Form 1041 yet? Based on income, are you required to file a Form 1041 for calendar year 2023?
If yes, have you looked at whether you can instead elect a non-calendar year that ends in early 2024 after the stock sale?

If you choose a calendar year 2023 for Form 1041, it doesn’t seem like the Estate could take the position that 2023 was the final year. The Estate sold the stock in 2024. Has probate been completed? When was the Estate account fully distributed to the beneficiaries?
Topic Author
Wonderdog
Posts: 3
Joined: Wed Jul 04, 2018 12:56 pm

Re: Form 1041 "Initial" vs "Final" return for an Estate

Post by Wonderdog »

Thanks all. I appreciate you help.

Are you planning to prepare the Form 1041 or will you have the Estate attorney or tax accountant do so?
- I was going to do this myself. The attorney has not offered to do so.

Has the Estate filed any Form 1041 yet?
- No, because my uncle died late in 2022, there was no income for his Estate in the last few months of the year. This would be the first year the that I will be filing a 1041.

Based on income, are you required to file a Form 1041 for calendar year 2023?
- Yes, the Estate received ~7,000 in dividends in 2023.

If yes, have you looked at whether you can instead elect a non-calendar year that ends in early 2024 after the stock sale?
- I have not. Thanks for the tip. How would choosing a non-calendar year affect the distribution of a loss on the stock sale?

If you choose a calendar year 2023 for Form 1041, it doesn’t seem like the Estate could take the position that 2023 was the final year. The Estate sold the stock in 2024.
- I think I'm realizing that 2023 can't be the final year.
- When I sold the stock in March, the stock was valued at ~50k less than on the day my uncle died. I'm guessing that this loss will need to be divided up and distributed among all of the benficiaries?
- There are 17 beneficiaries. I'm not one of them, although my mother is.

Has probate been completed?
- No. I have letters testamentary, but currently, the court says I am delinquent in providing them with an inventory.
- The attorney prepared an inventory and I signed it in his office a couple of weeks ago. He just needs to file it and have it approved.

When was the Estate account fully distributed to the beneficiaries?
- The Estate will not be distributed.
- If I had been able to get my uncle's stock into the Trust, there would have been nothing in the Estate. As it was, my uncle had a pour-over Will, but I needed to go through probate to be able to take possession of the stock, sell it and deposit it into the Trust account. A lot of stuff went wrong in getting into and through probate.

Without a doubt, this has been a learning experience. Not sure I would have chosen it, but I'm sure the next time I do this, it will be easier. And I'll make sure my executor/trustee will have an easier time.
MarkNYC
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Joined: Mon May 05, 2008 7:58 pm

Re: Form 1041 "Initial" vs "Final" return for an Estate

Post by MarkNYC »

It sounds like the estate received $7,000 stock dividends in 2023, and since those dividend checks were deposited into a trust account, the estate made 2023 income distributions to the trust. So it's likely both the estate and the trust should be filing income tax returns for 2023. And the trust should file a return for 2024 to report the sale/loss of the stock.

Stock dividends are usually paid quarterly, so with $7K dividends in 2023 it seems there should have been approximately $1,700 dividends for the estate from the date of death in Sept 2022 through 12/31/2022. If so, was an estate income tax return filed to report that income?

Whether a fiscal year can still be elected is questionable.

Given the complexities, and with 17 trust beneficiaries, professional tax preparation assistance may be advisable.
bsteiner
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Joined: Sat Oct 20, 2012 9:39 pm
Location: NYC/NJ/FL

Re: Form 1041 "Initial" vs "Final" return for an Estate

Post by bsteiner »

The regulations were changed a while ago. An estate may elect a fiscal year on its first return even if it’s not timely filed.
HomeStretch
Posts: 11618
Joined: Thu Dec 27, 2018 2:06 pm

Re: Form 1041 "Initial" vs "Final" return for an Estate

Post by HomeStretch »

Consider using a professional for the Estate and Trust tax filings (the fees can be deducted on Form 1041). Estate and trust tax filings are not as simple as they look. I am going through the process with a family member who is the Executor and DIYing the Form 1041. 3rd draft, still not quite right.
Topic Author
Wonderdog
Posts: 3
Joined: Wed Jul 04, 2018 12:56 pm

Re: Form 1041 "Initial" vs "Final" return for an Estate

Post by Wonderdog »

Thanks everybody. I'm going to get some professional help.
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