Form 1041-Decedents Estate

[djack1040]

Will be attempting my first Form 1041 for a very close friends mother's estate.
Facts are: DOD 03/23/06; has will naming one beneficiary. Income since DOD is $1,000/mo in oil royalties and $25,000 in interest income from sale of Series E Savings Bonds (purchased in 1960). Total estate income for 2006 will be $ 34,000.

Will take depletion deduction on Sch E.

Beneficiary has been appointed Personal Representative by a Probate Court.

No actual cash distributions will be made to beneficiary in 2006.

What pitfalls do I need to address for the Form 1041 filing?

I don't understand issuing a K-1 to the beneficiary if no distribution has been made. However, the tax on the estate income calculates over $10, 000 if an adjustment for distributions is not taken.

I do plan more research but am concerned about end of year decisions to minimize taxes.

[OldJack]

A fine example of attorneys and probate court costing the beneficiaries. Distributions can't be made without the judge ruling who the beneficiaries are and he and the attorney are busy getting ready for Christmas. Your 1041 therefore must be filed and the estate pay the income tax, however, the estate can elect its year end as 12 months from the date of death. Maybe with that the attorney and court will go back to work.

[Kram BergGold]

Suggestions

You really want to line up deductions and distributions with income to minimize tax to the estate. 1041 taxes are higher than 1040 taxes. If distributions can be made by March, then selecting a fiscal year sounds like a good idea. Be careful not to end up with dedcutions in excess of income in a year prior to the last year as these will be lost.

[New York Enrolled Agent]

Djack

You wrote: Facts are: DOD 03/23/06; has will naming one beneficiary. Income since DOD is $1,000/mo in oil royalties and $25,000 in interest income from sale of Series E Savings Bonds (purchased in 1960). Total estate income for 2006 will be $ 34,000.

Since the taxpayer died in 2006, the exceutor can elect to report the interest income on the redemption of the savings bonds on the decedent's final 1040 return. You might save a good deal of tax by making this election. The only interest that would then be reported on the 1041 would be the interest attributable from the day of death to the day of redemption. Would definitely check it out.