Trust and Estate Tax Returns

Yes. R Tax Services prepares the income tax returns that come with settling an estate or managing a trust: the decedent's final Form 1040, the estate or trust Form 1041 with beneficiary K-1s, and the Indiana Form IT-41 and Kentucky Form 741. We work with executors, trustees, and their attorneys from our Evansville, Indiana office.

We handle the tax returns. Questions about probate, estate administration, or the terms of a will or trust are legal questions, and we will refer you to an attorney for those.

Who this is for

You were named executor of a parent's estate, you are the successor trustee of a family trust, or you are an attorney looking for a tax preparer to handle the fiduciary returns for a client. Settling an estate often means two or three different returns for the same person across overlapping periods, and it helps to have one firm keep them consistent.

What we handle

The decedent's final Form 1040

The executor or other person in charge of the decedent's property is responsible for the final individual return (IRC section 6012(b)(1)). For a calendar-year taxpayer it covers January 1 through the date of death, and income received after death belongs to the estate or the beneficiaries instead. IRS Publication 559, Survivors, Executors, and Administrators, covers the details.

Estate and trust income tax returns (Form 1041)

Estates and trusts are taxpayers in their own right under IRC section 641 and file Form 1041. An estate must file when its gross income is $600 or more. A trust must file when it has any taxable income or gross income of $600 or more. Either one must file if a beneficiary is a nonresident alien (IRC section 6012(a)(3) to (5)).

The tax brackets for trusts and estates are compressed: the top rate applies at a far lower income level than it does for individuals (IRC section 1(e)). That makes distributions important. A trust or estate generally deducts the income it distributes, up to its distributable net income, and the beneficiaries report that income on their own returns (IRC section 651 for simple trusts, section 661 for complex trusts and estates). We prepare a Schedule K-1 for each beneficiary, and we can make the election under IRC section 663(b) to treat distributions made in the first 65 days of a year as made in the prior year when that helps.

Grantor trusts

When the person who created a trust keeps certain powers or interests, such as the right to revoke it, the trust is a grantor trust and its income is taxed to that person under IRC sections 671 to 679. Most revocable living trusts work this way during the grantor's life. After the grantor's death, the trust usually becomes a separate taxpayer, and the Form 1041 instructions explain the reporting options, including an election to treat a qualified revocable trust as part of the estate.

Indiana and Kentucky fiduciary returns

Form IT-41, the Indiana Fiduciary Income Tax Return, is required for a resident estate or trust with gross income over $600, and for a nonresident estate or trust with more than $600 of gross income from Indiana sources (IC 6-3-4-1; Indiana DOR fiduciary FAQ). Kentucky uses Form 741, and its filing thresholds differ from the federal ones (Form 741 instructions). We prepare whichever state returns the estate or trust requires.

What to bring or upload

• The death certificate, and the will or trust document
• Court letters appointing the executor or administrator, if there was a probate estate
• The decedent's prior year tax return
• All 1099s, W-2s, and K-1s issued to the decedent, the estate, or the trust
• Statements for every account, showing values at the date of death
• Records of asset sales, expenses paid, and distributions made to beneficiaries
• The estate or trust EIN, or let us know if one has not been obtained yet

Common mistakes we see

• Reporting estate income on the final 1040. Income received after the date of death generally belongs on the estate or trust return.
• No EIN for the estate. The IRS says an estate needs its own EIN, and accounts should be retitled to it (IRS EIN page).
• Missing date-of-death values. Inherited assets generally take a new basis at death (IRC section 1014), and without those values later sales are hard to report correctly.
• Leaving income trapped in the trust. Compressed brackets mean undistributed income can be taxed at the top rate quickly.
• Not notifying the IRS of the fiduciary relationship. Form 56 tells the IRS who is acting for the estate or trust.

How the engagement works

Before any work begins, you receive an engagement letter listing the final, estate, trust, and state returns we will prepare. You can meet with us at our office at 1102 E Virginia Street in Evansville or upload documents through our secure client portal, which is often easier for executors who live out of town. How We Work explains each option.

We coordinate with the estate's attorney when there is one, prepare the returns and beneficiary K-1s, and review everything with you before filing. Answers to common process questions are on our FAQ page.

Written and reviewed by Jeremy Roman, EA, owner of R Tax Services and an Enrolled Agent licensed by the IRS. This page is general information, not advice for your specific situation.