Home inherited by five heirs

[Tax Counsel]

The 1041 was not filed. And now that deadline is passed as is the time for extension.

The Form 1041 is the income tax return for the estate, not the estate tax return (Form 706). Even a relatively small estate can end up with taxable income that has to be reported and have tax to pay. For example, if the trust earned some interest or dividend income during the year while probate was being sorted out and no distributions were made to pass that income to the beneficiaries the trust may have an obligation to file the Form 1041 and have some tax to pay. In that case, the failure to file the Form 1041 on time and pay the tax would result in a late filing penalty, late payment penalty, interest, and perhaps an estimated tax penalty, too. So the estate executor really needs to look at the income of the estate during the year rather than the assets of the estate and ensure that a Form 1041 is filed if the estate has income. It is also important that the estate file this return and provide the Schedules K-1 to the beneficiaries so that they have the information they need to prepare their returns. I strongly urge the personal rep of the estate to seek out assistance from a tax professional familiar with the Form 1041 for help to ensure the estate meets its obligations.

So, it would seem that if all goes well, we'd file the first and final 1041 at close of probate.

It may be that you need to file a Form 1041 before that.

We won't know what the total value of the estate after costs will be until after probate.

Again, Form 1041 is an income tax return. What matters is what income the estate has (interest, dividends, capital gains, rents, business profits, etc) rather than what the total assets of the estate are. The total assets matter for the estate tax return (Form 706) if the estate is large enough to be subject to that tax.

And I don't believe there will be any tax due so filing late won't result in penalties (?? I hope)

For the Form 1041 there will not be penalties and interest to pay if there is no tax on the return.

 

[Frank Chapman]

First and foremost, please accept my sincerest condolences upon the recent passing of your parents. I pray you be allowed to grieve and mourn their passing in peace, as you endeavor to go on with your lives.

Have the siblings discussed placing the real property into a "family trust" (or other applicable trust)?

Thank you for your condolences and well wishes.

A Trust to cover the estate has not been discussed because it will be dissolved. However, I realize that each sibling needs to have a Will and a Trust to cover their assets. It is unfortunate that the parents did not have a simple Trust. That would have saved $1,000's. The Will was written quickly toward the end of the surviving parent's life.

 

[Frank Chapman]

The Form 1041 is the income tax return for the estate, not the estate tax return (Form 706).

Again, Form 1041 is an income tax return. What matters is what income the estate has (interest, dividends, capital gains, rents, business profits, etc) rather than what the total assets of the estate are. The total assets matter for the estate tax return (Form 706) if the estate is large enough to be subject to that tax.

For the Form 1041 there will not be penalties and interest to pay if there is no tax on the return.

Thank you for refreshing my memory of the difference between the 1041 and 706 ! As I recall the need to file a 706 is based on the value of the estate. I don't think this estate has sufficient value to trigger the need to file a 706. And there probably is not a lot of income requiring the 1041, but again, I'll confirm that. I realize I don't know how large the mortgage is on $130k house. I just realized I don't know whether a 1040 was filed for the parents for 2020. Always something!

Thank you for your time and expertise !

I apologize for the delayed response. I'm only allowed 5 posts / 24 hour period.