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Level 2

Estate tax and distributions

My father's trust/estate was closed in 2008 and recently we found an insurance policy that named the estate as the beneficiary.  There is interest on the policy and I have gone through probate so it can be distributed.  My questions are as follows:

I am ready to distribute the proceeds.  Can I distribute the non-taxable portion so the beneficiaries don't have to pay taxes and leave the taxable amount (interest) in the estate so taxes are paid from the estate?  This allows me to also deduct the cost of lawyers and probate which offsets the taxable income (is this correct?)  Or can I pay the taxes from the estate and submit a 1041 now (In August) and then distribute to the beneficiaries after the irs form is submitted in August?  Or do I have to wait until next year  to distribute after taxes are paid?  Or I distribute now and each person pays taxes based on their situation - so cannot use the lawyer's expenses?

Thanks for any advice.

3 Replies
Level 10

Estate tax and distributions

Estate closed in 2008? Estate can't deduct cost of lawyers and probate it paid back in 2008 on a 2021 tax return.....only costs that were paid in 2021. Maybe better off just filing a 1041 and letting the income flow to the benes OR file a 1041 now and have the estate pay the tax and then distribute everything next year.

Level 2

Estate tax and distributions

Thank you.  The lawyers fees are due to the recent distribution and not anything prior to this year.  Also,  as the executor, I will be reimbursed the lawyer/probate fees out of the estate.  Can this be paid by the interest or one cannot specify and it just comes out of the estate?  I am trying to reduce tax implications for my nieces. Otherwise, I will distribute and each beneficiary will add to their income.


Level 10

Estate tax and distributions

If paid by the estate this year you can definitely deduct the fees and expenses from the interest income.

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