Tax Refund to Estate

[HydroSci]

I received a 2018 tax refund for my father’s estate in 2023. I am the fiduciary. He passed away 3 years ago. I never had to file an estate return because the estate had no money until now. The taxable interest generated from 2018 - 2023 is greater than $600 so the estate is required to file. A living trust is the beneficiary. But trust accounts were long since closed so the money remains in an estate account for now. I got an EIN and filed an estate return and paid tax on the interest. But now I’m wondering: Can the estate hold the money, pay any expenses and taxes, and distribute the remaining money to the trust in 2024? Or should it have been distributed right away to the trust? It seems to me that either way works as long as the money is tracked and taxes are paid accordingly. I asked my accountant, but he is currently unavailable, so I would like some other knowledgeable tax professionals to weigh in.

[tagteam]

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@HydroSci wrote:

I received a 2018 tax refund for my father’s estate in 2023. I am the fiduciary. He passed away 3 years...

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I am sorry for your loss but how is that possible? The math does not work.

If the refund was for the 2018 tax year and your father passed away 3 years ago, the refund could not have been for his estate as he was still alive in 2018. Can you clarify this?

Regardless, federal income tax refunds are not taxable in any event.

[HydroSci]

It took years of appeals to get the refund.  As a result, the refund generated taxable interest after he passed away.

[RobertB4444]

You are the executor so you get to make this decision.  The refund and interest earned should definitely be used to pay any debts of the estate (like the taxes you paid).  

If there is the potential for more debts to pop up then you may want to hold the money in the estate until those are paid.  

If you are reasonably comfortable that all debts have been taken care of then it is fine to transfer the money and shut the estate down.

@HydroSci 

[tagteam]

If the estate received the interest income then it is the estate that should report it.

However, note that a return for an estate is required to be filed if the estate has income of $600 or more?

What was the total interest?

[HydroSci]

$2,800.  I noticed that TT did not transfer interest to the CA 541.  Is that a mistake?  How do I fix that. 

[tagteam]

Forms Mode. You are using TurboTax Business, correct?

[HydroSci]

Yes.  But why didn’t it transfer from federal?  I already transmitted and only noticed after the fact.

[tagteam]

TurboTax Business does not provide the handholding and functionality as do the individual income tax preparation products.