Income in Respect of Decedent

[Jesse]

Sorry if this seems basic but.............

Taxpayers Father died February of 2008.

He had a small pension and just under $3,000 in interest income.

With such a small amount of gross income and no tax liability is there any reason he would be required to file?

[DaveO]

No reason as far as Federal taxes go. Was there any withholding on the pension? A claim for refund would be the only thing I can think of.

[Jesse]

Nothing withheld from Federal or State.

Penalty for not filing would be based on amount due, so with nothing due, I'm not out anything by not filing. I'm not filing.

Thanks for the help.

[Burke]

That is a lot of interest if he died in February of 2008. Income in respect of a decedent would be the pension income if it were due prior to the date of death but received after DOD. Any interest and/or IRD received after DOD belongs to the estate, and the estate is required to file a 1041 if income exceeds
$600. I am assuming you are looking at a 1099-INT for 2008 in the decedent's name? Possibly it was never changed to the estate? If the income was transferred to beneficiaries, it may go on their 2008 returns. Who got the corpus?

[Jesse]

That is a lot of interest if he died in February of 2008. Income in respect of a decedent would be the pension income if it were due prior to the date of death but received after DOD. Any interest and/or IRD received after DOD belongs to the estate, and the estate is required to file a 1041 if income exceeds
$600. I am assuming you are looking at a 1099-INT for 2008 in the decedent's name? Possibly it was never changed to the estate? If the income was transferred to beneficiaries, it may go on their 2008 returns. Who got the corpus?

He averaged over $1,200 a month in 2007 so the amount seems reasonable.

Another sibling is handling the estate, which actually consists of a trust for which my client does have a K-1 from. From what the son said the house is still in the trust so everything but the home was distributed, that would be the corpus correct?

The K-1 has the income amounts, but doesn't state the total distribution he actually received. You seem very knowledgeable in this area, is there more I should be looking for or questions I should be asking?

[Burke]

Let me address your original question first. If the $3,000 interest and the pension was received by the father prior to his death and there was no withholding, then it does not appear that a final 1040 tax return needs to be filed for him, as DaveO said. There may also have been some Social Security? But not likely enough to be taxable.

When you say "my client" I am assuming you mean the son of aforementioned taxpayer. All of the deceased's assets should have gone into an estate account. You mention a trust which brings in a whole new ball game. You need to know what kind of a trust. Did the will specify that all assets went into a trust at his death? This would be a testamentary trust. You say your client has a K-1. Did the trust and/or estate file an income tax return on a calendar year basis? Both the estate (if there is one) and a trust use the same form, 1041 and K-1's, although the estate can elect a fiscal year which would end 1/31/09.

The corpus is the principal ( gross assets) of the estate. The K-1 is showing income items which need to go on the beneficiary's return, which may or may not equal any distributions. These would be pro-ratable earnings from the date of death, such as interest, dividends, cap gains, etc, etc, to the extent of any distributions.

[Jesse]

>>Let me address your original question first. If the $3,000 interest and the pension was received by the father prior to his death and there was no withholding, then it does not appear that a final 1040 tax return needs to be filed for him, as DaveO said. There may also have been some Social Security? But not likely enough to be taxable. <<

Yes, father had social security, not enough to be taxable.

>>When you say "my client" I am assuming you mean the son of aforementioned taxpayer.<<

Yes, my client is the son. He brought a copy of Dad's 2007 taxes and the information he had for 2008.

>>Did the will specify that all assets went into a trust at his death?<<

Yes, from what I understand Dad did it this way to avoid probate and once trust is depleted no estate tax involved, he said it was originally set up in the early 90's. This time of year I'm just not sure if I'm thinking clear or clear as mud!

>>Did the trust and/or estate file an income tax return on a calendar year basis?<<

The K-1 has XXX Rvoc Tr Dated, --/--/-- and amounts for Interest income, Dividends, and other nonbusiness income.

I will give him back his Dad's info to give to the sibling in charge. Thanks for letting me think out loud.

[Burke]

Okay, I get it now. The father apparently had a living trust which was a disregarded entity while he was living. When he died, the assets could be dispersed without probate (this does not avoid Estate Tax, but unless it was over $2,000,000.....). So what you have is a K-1 from the trust for income that goes on the son's 2008 return.

[Jesse]

Yes, and since we are on the subject I have another Form 1041 question. I have a friend of my fathers, not a client who's son died. He had a disability policy that paid a death benefit of just over $5,000. I tried to go through the forms and I come up with just under $900 due to the Federal and $250 to Wisconsin.

Is there any suggestions to knock this down? If it was distributed, but was not required to be distributed can it still flow through the K-1 and taxed at the beneficiary's tax rate?

This might be a mute point because I haven't a clue what the Dad's tax rate is, but I don't even want to suggest it if it's just flat out wrong. This would be the one and only item in the estate and the only reason Dad was required to get the FEIN, which he also did on his own. He just brought this in on Friday and I'm really having a problem deciphering my left from my right - brain is mush! Seems like this should be simple and straight forward but sometimes that's when it's not!