My wife’s father passed away and she was the executor of his irrevocable living trust and sole survivor. The trust was set up to bypass probate. Is a K1 needed?

[pllevasseur]

My wife’s father passed away and she was the executor of his irrevocable living trust and sole survivor. The trust was set up to bypass probate and it wasn’t a business trust.   The funds were transferred to a trust bank account at B of A so my wife could pay any outstanding bills. After her father’s debt was paid she left $20,000 in this account in the event an unknown bill should surface.   The remaining $470,000 was transferred to our personal account. This is an inheritance but I don’t know if a K1 needs to be filed and is yes how this is done. Thank you for any assistance you can offer.  Regards, [PII removed]

[RichardG · Accepted solution]

As executor, your wife needs to take two steps:

• Final a final tax return (Form 1040) for her father
• File a tax return (Form 1041) for the trust

She can use any version of TurboTax to prepare her father's final return.  To prepare the trust return, she'll need to use TurboTax Business https://turbotax.intuit.com/small-business-taxes/  That program will prepare Form K-1 for the beneficiaries.

Without knowing the details of the trust and its income for the year (please don't share that information on this public forum), I cannot say whether the trust distribution you received will contain any taxable income for you.  As a general rule, inheritances are not taxable income.