Trust and Estate Filings
Trusted Support for Fiduciaries – Navigating Trust & Estate Tax Filings with Accuracy & Confidence
What is a trust?
- A fiduciary arrangement where a trustee holds and manages assets on behalf of beneficiaries
- Can be created because of death of an individual
- Can be created during the grantor’s lifetime, as known as living trusts
- An estate planning tool offering options for asset protection and tax planning
Trusts can be categorized into two distinct types:
Grantor Trust
- Where the grantor who creates the trust maintains control of the trust, such as the power to direct investments, amend/revoke the terms of the trust, or receive trust income
- Income earned by the trust is taxed to the grantor
- The grantor who creates the trust maintains control of the trust, such as:
- The power to direct investments
- The ability to amend or revoke the terms of the trust
- The right to receive trust income
- Income earned by the trust is taxed to the grantor
Non-Grantor Trust
- The grantor gives up all control and benefits
- The trust’s operations are independent of the grantor
- Separate taxable entity, with income reported on Form 1041
- The grantor gives up all control and benefits
- The trust’s operations are independent of the grantor
- The trust is a separate taxable entity, with income reported on Form 1041
Form 1041 U.S. Income Tax Return for Estates and Trusts
The fiduciary of the trust or estate files Form 1041 to report the income (or loss) and gains (or losses) of trust, income retained in the trust vs distributed to beneficiaries, and income tax payable of the trust. The IRS requires all income generated by the trust to be reported on the return, which includes:
Interest income
earned from funds held with banks
Capital gain or (loss)
earned the sale of capital assets
Dividend income
earned from stocks held with corporations
Rents and royalties
earned from leasing of property
Business income or (loss)
earned from business carried on by the estate
Other income
How much income tax does my trust have to pay to the IRS?
Income of trusts and estates is taxed at graduated rates. For 2024, these tax brackets are:
| Taxable Income | Tax Rate |
|---|---|
|
$0 to $3,100 |
10% of taxable income |
|
$3,101 to $11,150 |
$310 plus 24% of the amount over $3,100 |
|
$11,151 to $15,200 |
$2,242 plus 35% of the amount over $11,150 |
|
Over $15,200 |
$3,659.50 plus 37% of the amount over $15,200 |
Services TMP can assist you with
Form 1041
Income tax return for Estates and Trusts
form 706
if the deceased’s estate exceeds the exemption threshold
Schedule K-1
for trust income distribution
form 3520
for certain foreign trusts
Form 1040
for a deceased individual
Form 3520-A
for certain foreign trusts
What are the key documents required for preparing a Form 1041?
- the decedent’s final Form 1040
- a list of assets held by the decedent (inherited by the estate) at death and their fair market values
- trust document/will
- records of income earned by the trust
- records of deductions
- records of distributions made to the beneficiaries
Key IRS Filing Requirements & Deadlines
Understanding the tax obligations of trusts and estates is crucial. Below are common filing requirements:
Form 1041 – U.S. Income Tax
Return for Estates & Trusts
- Required for estates and trusts with gross income of $600 or more in a tax year
- Filing Deadline: April 15 (or September 30 with an extension)
IRS Record-keeping
Requirements
As a fiduciary, you are responsible for:
- Reporting all trust or estate income, deductions, and distributions
- Filing applicable state tax returns
- Managing tax payments and estimated taxes when necessary
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Frequently Asked Questions (FAQs)
Find answers to common questions about Democracy
The fiduciary uses Form 1041 to report the income, deductions, gains, losses and tax payable of estates and trusts. A deceased individual’s estate can generate income from property before it is distributed to beneficiaries. A trust is a legal arrangement where assets are held and managed for the interest of beneficiaries and can generate income from those assets during its existence.
The return due date is April 15 of the year following the tax year for calendar-year estates and trusts. The return due date is the 15th day of the 4th month after the fiscal year-end for fiscal-year estates and trusts. You can also file Form 7004 to extend the return due date by 6 months.
Yes, you can file estate income tax returns electronically using IRS-approved tax software. They have encryption and security measures in place to protect your data.
A trust or estate has to file Form 1041 if it has any of the following :
- Gross income of $600 or more for the tax year
- Any taxable income for the tax year
- A non-resident beneficiary
Yes, the IRS would impose a failure-to-file penalty which is 5% of unpaid tax per month, up to 25% of unpaid tax. The IRS would also impose a failure-to-pay penalty which is 0.5% of unpaid tax per month, up to 25% of unpaid tax.
Yes, certain deductions are allowed against the gross income and include
- Interest expense on money borrowed to earn income
- Charitable donations
- Fiduciary fees
- State and local taxes paid
- Legal and accounting fees
- Income distributed to beneficiaries
Beneficiaries are taxed on distributions of income. However, distributions of capital are generally not taxable to beneficiaries. The trust provides Schedule K-1 to the beneficiaries to report the distributed income on their personal tax returns. The trust deducts the income distribution on Form 1041 to avoid double taxation.
Revocable Trusts – Can be altered or revoked by the grantor
Irrevocable Trusts – Generally cannot be modified, offering asset protection and tax advantages
Charitable Trusts – Supports philanthropic causes while providing tax benefits
Special Needs Trusts – Protects assets for individuals with disabilities without affecting government benefits
Testamentary Trusts – Created through a will and activated after the grantor’s passing
No, unlike U.S. persons who can claim the standard deduction on their Form 1040, estates and trusts are not allowed the standard deduction. Instead, they can claim certain specific deductions on Form 1041 (see FAQ#6).
Yes, a deceased individual must file a final Form 1040 which covers the period from January 1 of the year of death to the date of death to report income earned during that period. If any income is earned after the date of death, the income is reported on Form 1041 of the decedent’s estate, rather than on the decedent’s final Form 1040.
The trustee plays a crucial role for the tax compliance of the trust. It is responsible for managing and administering the trust’s assets and finances, obtaining tax identification number for the trust, filing required tax returns, paying taxes, issuing beneficiary statements and maintaining accurate accounting records.
Foreign trust distributions to U.S. beneficiaries must be reported on Form 3520 (Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts).
- U.S. beneficiaries must include the distribution amount as income on their personal tax return if it includes income earned by the trust.
- The trustee may need to provide a Foreign Non-Grantor Trust Beneficiary Statement to determine taxable amounts.
Not necessarily. Only trusts with taxable income or distributions meeting certain thresholds are required to file. Required for estates and trusts with gross income of $600 or more in a tax year.
Yes, an estate must file an FBAR (Report of Foreign Bank and Financial Accounts) if:
- The estate has financial interests or signature authority over foreign accounts exceeding $10,000 at any time during the calendar year.
- Executors or administrators are responsible for filing the FBAR on behalf of the estate.
- Form 1041: Filed annually by trusts or estates to report income earned during the tax year and distributions made to beneficiaries.
- Form 706: Filed to report the value of a decedent’s estate and calculate estate taxes owed. It is a one-time filing due nine months after the decedent’s date of death.
Foreign trusts themselves are not subject to U.S. estate tax. However :
- Assets Held in the U.S.: U.S.-situs assets within the trust (e.g., real estate, stocks of U.S. corporations) may be subject to estate tax upon the death of the grantor or a beneficiary.
- Grantor Estates: The estate of a foreign grantor may also be subject to U.S. estate tax if the grantor owned U.S.-situs assets.
TMP pricing for estate income tax return
Basic Package
Number of income slips:
1-3 slips
Foreign financial accounts:
up to 2 accounts
Other schedules:
no or minimal other schedules required
Deductions:
up to 1 deduction item (interest, fiduciary fees, donations etc)
Distribution:
no distribution to beneficiaries
Expert Package
Number of income slips:
1-5 slips
Foreign financial accounts:
up to 4 accounts
Other schedules:
up to 2 other schedules required such as Schedule C (business income), Schedule E (rental income), Schedule D (capital gains)
Deductions:
up to 3 deduction items (interest, fiduciary fees, donations etc)
Distribution:
distribution to up to 3 beneficiaries
Premium Package
Number of income slips:
1-8 slips
Foreign financial accounts:
up to 8 accounts
Other schedules:
up to 3 other schedules required such as Schedule C (business income), Schedule E (rental income), Schedule D (capital gains)
Deductions:
up to 4 deduction items (interest, fiduciary fees, donations etc)
Distribution:
distribution to up to 5 beneficiaries
Next Steps
Step 1
Please fill in this questionnaire
Step 2
Schedule a consultation with
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a final quote and a checklist of
the required data.
Step 3
Upload requested data
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