Estate 1041?

[quicksam]

Client needs to file 1041 for her dad's estate for 2005 and 2006.

The only income to the estate was $5800 royalty income. The money was left in the estate and not taken out, so do I just let the estate pay the taxes or do I have to file K1's for the beneficiaries passing it along to them. I'm just not sure how to handle it since the income was never distributed to them.

Thanks

[Bees Knees]

Only Simple Trusts are required to distribute income in any given year. Estates are not required to distribute income. The income distribution deduction is the lesser of distributable net income, or distributions. Since you said distributions are zero, then the estate cannot take a distribution deduction and is therefore taxed on all the income. The beneficiaries would not get a K-1 in such a year.

[dsi]

Out of curiosity, and for my own clarification when you are preparing the 1041, do you check the box that says "estate" ? Even if your client had a living trust?

[Bees Knees]

A living trust turns into an estate at death.

[dsi]

So the "estate" box should be checked on the 1041? -vs- the "trust" box?

[Davc]

A living trust turns into an estate at death.

No it doesn't. It becomes an irrevocable trust. You may however, elect to treat the trust as part of the estate and only file an estate return.

[Bees Knees]

No it doesn't. It becomes an irrevocable trust. You may however, elect to treat the trust as part of the estate and only file an estate return.

I agree. Thanks for the correction.

[dsi]

No it doesn't. It becomes an irrevocable trust. You may however, elect to treat the trust as part of the estate and only file an estate return.

So once the trust becomes irrevocable, the box to check on the 1041 would either be a simple or complex trust?

[John of PA]

Not a K-1 passthrough

On the questioned scenario, you must pay the tax at the 1041 level. You can only pass-thorugh the 5800 income via K-1's if it was distributed to the beneficiaries. This is my understanding.

[Davc]

So once the trust becomes irrevocable, the box to check on the 1041 would either be a simple or complex trust?

Unless you've made the election to treat the trust as part of the estate in which case you file only an estate return.

[quicksam]

Thanks for all the replies, I've been home enjoying the holidays.

Since everyone is in agreement that the money would not pass thru on K1 since the beneficiaries did not withdraw it, then what happens when they do decide to take it out.
Do they pay tax on it again?

Or do we mark that the taxes have already been paid on this money?

Thanks again,

quicksam