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1041 Fiduciary Return, Assets Not Distributed Right Away

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    #1

    1041 Fiduciary Return, Assets Not Distributed Right Away

    Hi All. I just want to make sure I am reporting income correctly on final decedent return, estate income return and beneficiaries' returns.

    Mom passed away in April 2018. Three beneficiaries. Cash and mutual funds were distributed to two of the three beneficiaries right away (and one is doing his best to spend it as soon as possible, amazing how fast somone can blow through $500,000).

    Anyway, the third beneficiary is going through a nasty divorce so her share will not be distributed until after the divorce is final, which could be late 2019 or even 2020.

    The daughter who is handling the estate has not closed the mother's Schwab account, so the assets that have not been distributed yet are still earning income under mom's SSN.

    Questions:

    1. Does the daughter need to close the mom's Schwab account and open one under the estate EIN? I'm guessing this should have been done right away after DOD? Maybe she has done this and I just don't know it yet, I'll confirm tomorrow.

    2. I divided the interest, dividends and capital gain distributions between the final decedent return and the fiduciary return based on the date of death and using the nominee fields in Drake. I think I have that part correct, so no questions there.

    3. Daughter sold mutual funds a few days after mom passed while still in her account. Report on the fiduciary income return with step up in basis?

    4. Continue to report interest, dividends and capital gain distributions on fiduciary return until distributed to third beneficiary (hopefully this year)?

    I'm sorry if this is basic info, I am so tired I am second guessing everything right now. Thank you in advance.
    Tags: None
    #2
    Question 1: YES. Right away. This should have been done before mutual funds were sold.
    Question 2. Correct.
    Question 3: YES.
    Question 4. YES.

    There is an underlying issue here: What does the will say about distribution or dividing the assets? Does it say the executor can put one beneficiary's share in a trust? If so, that is what needs to be done to protect the assets from creditors. Whether or not a distribution has been made, this is an asset of the remaining beneficiary just as money in a bank account. And I am sure the spouse's attorney has been made aware of it by the spouse. He must know the MIL had money. I do not believe the IRS would go along with keeping the estate open just because she happens to be going through a divorce. I am assuming the allowable DNI was sufficient to avoid tax on the estate.

    Comment

      #3
      Burke - thank you so much for the response. I was just talking with Schwab and learned that mom's accounts all had beneficiaries or TODs on the accounts. So, if I understand correctly, all income earned after DOD should be reported directly to the beneficiaries, not on an estate income tax return. Is that correct? I thought I had this figured out, now I am so confused!

      Comment

        #4
        Originally posted by kamckinley View Post
        I was just talking with Schwab and learned that mom's accounts all had beneficiaries or TODs on the accounts. So, if I understand correctly, all income earned after DOD should be reported directly to the beneficiaries, not on an estate income tax return. Is that correct? I thought I had this figured out, now I am so confused!
        You are correct. TOD accounts go directly to the beneficiary bypassing the 1041. That is why it is so critical to determine if the income should be allocated to the estate or the beneficiary.

        Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDR

        Comment

          #5
          Originally posted by ATSMAN View Post

          You are correct. TOD accounts go directly to the beneficiary bypassing the 1041. That is why it is so critical to determine if the income should be allocated to the estate or the beneficiary.
          Do I need to get corrected 1099s from Schwab or can I just nominee the income off the mom's final tax return, and let the beneficiary know she has to report it? I would prefer a corrected 1099, but not sure if that will happen or not (waiting to hear back from Schwab on this). Thanks!

          Comment

            #6
            Well, that is a horse of another color and YES you are correct. All income is reported on the beneficiaries' returns after DOD (whether it was distributed or not.) And no estate return needs be filed unless there is other income from other sources which was in the name of the deceased and not titled to transfer on death. Schwab should have done this as soon as it was notified of the death. They should adjust their records and issue corrected 1099's to the mother and to the bene's.

            Comment

              #7
              Our posts crossed in the mail. It would be better if Schwab did it but good luck since two of them have already gotten the money. They would have to set up accounts for the three bene's. Nominee-ing the dividend, interest income and cap gains from dividends reported on the 1099 is easy enough. For the sale of the funds after death, you can divide the gross proceeds by three, and then give them the basis to use on their returns. And you let all the bene's know it by sending each of them 1099's. Due to the late hour, a heads-up would be appropriate.
              Last edited by Burke; 04-08-2019, 10:36 AM.

              Comment

                #8
                Burke and ATSMAN - thank you so much!

                One more question... Daughter requested an EIN for the estate. Now, it doesn't look like that was necessary. Is the IRS going to be looking for an estate income tax return, should I file a return even though not required? Thank you again, I appreciate this forum, it's been a huge help.

                Comment

                  #9
                  Originally posted by kamckinley View Post
                  Burke and ATSMAN - thank you so much!

                  One more question... Daughter requested an EIN for the estate. Now, it doesn't look like that was necessary. Is the IRS going to be looking for an estate income tax return, should I file a return even though not required? Thank you again, I appreciate this forum, it's been a huge help.
                  If there is an estate EIN, You MUST file a 1041 even if it is 0 return and mark it initial and final otherwise IRS will hound the estate for a tax return. For my good clients I do it for free!
                  Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDR

                  Comment

                    #10
                    Originally posted by ATSMAN View Post

                    If there is an estate EIN, You MUST file a 1041 even if it is 0 return and mark it initial and final otherwise IRS will hound the estate for a tax return. For my good clients I do it for free!
                    I figured that might be the case, but good to have it confirmed. Thanks again!

                    Comment

                      #11
                      I had this happen once, and wrote the IRS to cancel it, that it was applied for in error. They did.

                      Comment

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