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    1041 Return Questions

    I had an elderly, prospective client call and ask if I can help with a 1041 Return. I've prepared none, so it will be a learning experience. She explained that her husband's brother (a disabled Veteran) has lived with them and died June 1, 2005. His only assets were a few CD's ($170,000) and the only income was interest on the CD's, VA disability, and social security. The CD's continued to earn interest in the deceased name until October 1st, when her attorney instructed her to deposit the proceeds of the CD's into a non-interest bearing account with Bank of America. The VA disability and social security were immediately terminated at death. No final 1040 was prepared. The prospective client indicated there was never enough taxable income.

    The final distribution is supposed to happen mid-May. My understanding is the interest earned June 1st-Oct1 was in excess of $600. The attorney advised her a 1041 needed to be filed. One other tidbit. The prospective client has been the deceased legal guardian for some time. She indicated she called several local attorney's and all declined to handle the estate because the deceased was a "disabled veteran".

    I don't get it. First, why would several attorney's decline to handle the estate because of the Disabled Veteran's status? Second, why isn't the attorney preparing the 1041? Third, why isn't the estate account at the bank interest bearing?

    More mundane questions. I assume the 2005 1041 should reflect the income since June 1st? If that's all the income, there really isn't too much to the 2005 return and the 2006 return will reflect all income earned and the distribution due April 15, 2007?

    Any input from you heavyweights would be greatly appreciated.

    #2
    You can do this all in one return if the assets are distributed in mid-May. Deceased died on 61/05 - an estate can have a fiscal year ending on the last day of a month and not exceeding one year. So your return would go from 6/1/05 to 5/31/06.

    Comment


      #3
      Originally posted by Zee
      I don't get it. First, why would several attorney's decline to handle the estate because of the Disabled Veteran's status?
      I don't know. Maybe they think there isn't enough money for them to bother with it.

      Originally posted by Zee
      Second, why isn't the attorney preparing the 1041?
      I don't know. Maybe the attorney doesn't think the client wants to pay that much for tax preparation.


      Originally posted by Zee
      Third, why isn't the estate account at the bank interest bearing?
      So that the estate stops earning income, thus, allowing the estate to be closed in one year, thus, you don't have to file a 1041 for two years.

      The attorney thinks the fee for filing a 1041 is more than the $600 of interest income you can earn before a 1041 is required to be filed. Thus, if you don't stop the interest, and the estate earns $601 in year two, but the attorney would charge $2,000 to file a simple 1041 return because you allowed the estate to go on into year two, that would not be very smart.

      But if you only were to charge $150 to prepare a 1041 in year two because you allowed the estate to earn an extra $601 in interest income, then the estate should continue to allow the the bank account to earn income.

      Attorney's can't understand why you as a preparer would only charge $150 for something that should take you a little less than an hour to prepare.


      Originally posted by Zee
      More mundane questions. I assume the 2005 1041 should reflect the income since June 1st? If that's all the income, there really isn't too much to the 2005 return and the 2006 return will reflect all income earned and the distribution due April 15, 2007?

      As the other poster posted, you can elect a fiscal year for an estate. Your first year begins on the date of death, and can have a year end on the last day of any month, but no longer than 12 months.

      Comment


        #4
        Originally posted by Unregistered
        You can do this all in one return if the assets are distributed in mid-May. Deceased died on 61/05 - an estate can have a fiscal year ending on the last day of a month and not exceeding one year. So your return would go from 6/1/05 to 5/31/06.
        OK. That makes sense. I assume the interest earned June 1 - Oct 1 (after the death) was reported using the deceased SSN. How do I get the 1099's corrected in time to file the return? And, any input on the other questions?

        Comment


          #5
          Originally posted by Zee
          OK. That makes sense. I assume the interest earned June 1 - Oct 1 (after the death) was reported using the deceased SSN. How do I get the 1099's corrected in time to file the return?
          That is not needed. Just put it on the 1041. Since the taxpayer's income is below the 1040 filing requirements anyway, the IRS won't even question it.

          Comment


            #6
            Bee Knees -

            Thanks for the quick responses. I couldn't think of any reason that several attorney's wouldn't help with the estate of a Disabled Vet other than the estate was too small to justify their minimum fees to handle the estate, or prepare the 1041. The non-interest bearing account doesn't make much sense to me, a cash management account would at least pay something. I don't know how much interest was earned, but was told it was greater than $600. Thanks for confirming including the 1099 interest as reported as an ok method, it would be too much trouble and time-consuming to request corrected copies.

            Comment


              #7
              What's reasonable for Executor Fees?

              Another question on the simple estate originally posted. The only asset seems to be about $170,000 in bank accounts. The lawyer indicated to the client that a reasonable fee for the personal representative services would be 3%. The client didn't seem to think this is "unreasonable" for such a simple estate. If the 3% the lawyer is suggesting is 3% of the assets, that's $5100. That seems "unreasonable" to me. Or, do you suppose, the lawyer is suggesting 3% of the 1041 income? I was planning on charging a nominal fee for the 1041 preparation($150). Now, I'm wondering why? What's wrong with people?

              Comment


                #8
                Don't confuse lawyers with people.

                Comment


                  #9
                  3% of value of estate

                  Originally posted by Zee
                  Another question on the simple estate originally posted. The only asset seems to be about $170,000 in bank accounts. The lawyer indicated to the client that a reasonable fee for the personal representative services would be 3%. The client didn't seem to think this is "unreasonable" for such a simple estate. If the 3% the lawyer is suggesting is 3% of the assets, that's $5100. That seems "unreasonable" to me. Or, do you suppose, the lawyer is suggesting 3% of the 1041 income? I was planning on charging a nominal fee for the 1041 preparation($150). Now, I'm wondering why? What's wrong with people?
                  There is no question that the when the lawyer says 3%, he means 3% of the value of the estate. Like anything else, there are good ones and not so good lawyers. Yes we need more good ones.

                  Comment


                    #10
                    3% of estate

                    That 3% was probably what the law allows. Most states have laws saying how much a lawyer can collect for handling an estate and it is usually a percentage based on the size ($$$) of the estate. Same for executors, the states limit their opportunity to drain the estate of money by charging large fees.
                    "A man that holds a cat by the tail learns something he can learn no other way." - Mark Twain

                    Comment


                      #11
                      3% Personal Representative Fee

                      Yes, the 3% is the allowable maximum a personal representative may charge. This estate has one non-interest bearing cash account with $170,000. The client (personal representative) seemed to think the 3% was "reasonable" for her services (almost none).
                      It kinda bothered me that I was worried the cash wasn't earning interest for the short time before the estate is closed, and thinking $150-$250 to prepare a very basic 1041 might be too high. I was also concerned they'd have to drive 2 hours to get to my office. I guess the greed of others just gets to me sometimes. My understanding is most relatives charge little or nothing.

                      Comment


                        #12
                        Estate Work...

                        ... is limited to a few practices. Those that do this type of work regularly charge big fees. Those that venture into the field NEED to charge big fees just to get up to speed on all the various issues that need to be addressed. No 1041, 706 or 709 is simple as they all require a certain level of knowledge to start out with. I think the cheapest I've charged for a 1041 is $300.
                        This post is for discussion purposes only and should be verified with other sources before actual use.

                        Many times I post additional info on the post, Click on "message board" for updated content.

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