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Estate, Gift, Trust, & Fiduciary Tax Returns

Estate planning on your own can be complicated and costly. And the list is endless… state taxes, bureaucracy, probate courts, unfair appraisals, health care concerns, eligibility of heirs, life insurance, IRA’s, 401K’s, annuities, burial or cremation costs, and intent regarding death-postponing treatment to name a few. Not knowing your legal and financial rights often ends up costing you more in the end.

Thoughts of estate planning often bring more questions than answers: Could an heir be too young to inherit? Should the inheritance be given at a certain age? Is the intended beneficiary in a shaky marriage with divorce as a possibility? Are there children from a previous marriage? Should inheritance be protected from potential creditors of the heir? Are there taxes that can be avoided? Are you able to avoid the probate court rules, delays, and costs?

Planning what happens to your estate when you’re gone can seem frustrating and intimidating without qualified help.

You may feel that you’re too young to care about estate planning. Or, perhaps the reminder of death makes you uncomfortable. You might be tempted to put the whole thing off, assuming that it will just take care of itself. In all cases, estate planning ends up saving your family lots of time, heartache and money.


The Estate Tax is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in at the date of death. The fair market value of these items is used not necessarily what you paid for them or what their values were when you acquired them. The total of all of these items is your “Gross Estate.” The includible property may consist of cash and securities, real estate, insurance, trusts, annuities, business interests and other assets.

Once you have accounted for the Gross Estate, certain deductions (and in special circumstances, reductions to value) are allowed in arriving at your “Taxable Estate.” These deductions may include mortgages and other debts, estate administration expenses, property that passes to surviving spouses and qualified charities. The value of some operating business interests or farms may be reduced for estates that qualify.

After the net amount is computed, the value of lifetime taxable gifts (beginning with gifts made in 1977) is added to this number and the tax is computed. The tax is then reduced by the available unified credit.

Most relatively simple estates (cash, publicly traded securities, small amounts of other easily valued assets, and no special deductions or elections, or jointly held property) do not require the filing of an estate tax return. A filing is required for estates with combined gross assets and prior taxable gifts exceeding $1,500,000 in 2004 – 2005; $2,000,000 in 2006 – 2008; $3,500,000 for decedents dying in 2009; and $5,000,000 or more for decedent’s dying in 2010 and 2011 (note: there are special rules for decedents dying in 2010); $5,120,000 in 2012, $5,250,000 in 2013, $5,340,000 in 2014, $5,430,000 in 2015, $5,450,000 in 2016, $5,490,000 in 2017, $11,180,000 in 2018, and $11,400,000 in 2019.


The executor or administrator of a deceased person’s estate or trust is a fiduciary, a person who holds assets in trust for a beneficiary. One of the fiduciary’s major duties is ensuring federal and state taxes and other financial obligations are paid before the estate or trust is passed on to the heirs. Since 1993, the Internal Revenue Service has designated its fiduciary income tax return as IRS Form 1041, U.S. Income Tax Return for Estates and Trusts. According to the IRS website, Form 1041 accounts for “income in respect of a decedent,” which is any income paid to the decedent after the date of death. Examples include deferred salary payable to the estate, uncollected interest on U.S. savings bonds or lump-sum distributions to the beneficiaries of the decedent’s.

Most deductions and credits allowed to an individual are also allowed for estates and trusts of a decedent, but there’s one major distinction, says the IRS website. The fiduciary can deduct from income the distributions being paid to beneficiaries because the tax on those distributions will be paid by the beneficiaries, not the estate or trust. Estates and trusts operating on a calendar year, Form 1041 must be filed by April 15 of the year following the year of death and each April 15 thereafter. Estates and trusts operating on a fiscal year, Form 1041 must be filed by the 15th day of the fourth month following the close of the fiscal year. The fiduciary can choose whether the tax period is the calendar year or a fiscal year. Fiduciaries can get an automatic five-month extension of time to file a Form 1041 but must pay estimated tax by the normal due date

The fiduciary of an estate or trust must make quarterly estimated tax payments if he expects the estate or trust to owe at least $1,000 in taxes and he expects withholding and credits will total less than the smaller of 90 percent of this year’s expected tax liability or 100 percent of last year’s tax liability, said the IRS website. Fiduciaries report estimated tax payments on Form 1041.

Trust and Estate

Who Must File?

The fiduciary of an estate must file a Form 1041. If the estate had more than $600 in taxable income or if there’s a beneficiary who is a nonresident alien, according to the Form 1041 instructions on the IRS website. In the case of a trust, the fiduciary must file a Form 1041 if the trust had any taxable income or there’s a nonresident alien beneficiary. The fiduciary signs the tax return.

What is Taxed?

According to the IRS website, Form 1041 accounts for “income in respect of a decedent,” which is any income paid to the decedent after the date of death. Examples include; deferred salary payable to the estate, uncollected interest on U.S. savings bonds or lump-sum distributions to the beneficiaries of the decedent’s individual retirement account. Posthumous income to an estate or trust has the same character it would have had if paid to the decedent while he was alive.


The gift tax is a tax on the transfer of property by one individual to another while receiving nothing or less than full value in return. The tax applies whether the donor intends the transfer to be a gift or not.

The gift tax applies to the transfer by gift of any property. You make a gift if you give property (including money), or the use of or income from property, without expecting to receive something of at least equal value in return. If you sell something at less than its full value or if you make an interest-free or reduced-interest loan, you may be making a gift.

Generally, the estate tax return is due nine months after the date of death. A six month extension is available if requested prior to the due date and the estimated correct amount of tax is paid before the due date.

The gift tax return is due on April 15th following the year in which the gift is made.

For other forms in the Form 706 series, and for Forms 8892 and 8855, see the related instructions for due date information.

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