Deductions on a Trust 1041 K-1

Forum|Forum|1 year ago
February 7, 2025
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When a Trust which Inherits an IRA distributes this income to Beneficiaries via a K-1 can expenses such as Funeral costs for my late father, accountant fees, lawyer fees, and other expenses be passed on as deductions on the K-1 to the 3 Beneficiaries to offset the Inherited IRA income? Probably not 😔

M-MTax

Level 15

You can deduct all reasonable expenses incurred by the trust as a result of the property being held in the trust.

For example, fiduciary fees can be deducted because they are incurred only by certain entities, such as trusts, as a result of property/cash being held in the trusts. Expenses that a hypothetical individual would incur cannot be deducted simply because the property is held in a trust (e.g., investment advisory fees).

Funeral expenses are never deductible on Form 1040 or Form 1041; they are only deductible on Form 706 if that form is required to be filed (which is relatively rare).

trust812Author

Level 6

OK, thanks! You are correct that the Trust is below the $12.92 Million Form 706 threshold, way below, like $11.5 Million below. LOL.

So it looks like fees such as the Estate Lawyer, Accountant and recording the Death Certificate would be deducted on lines 12 and 14 on the 1041. I have a question and I will use this simple example so that it will be easy for me to understand. Let’s say that in 2024 the Trust took a $10,000 distribution from the inherited IRA and issued a check to a Beneficiary for $10,000 in November 2024. The Lawyer, Accountant, and Fiduciary fees totaled $2,000. Then in January 2025 the Trust received a 1099-R for the $10,000 Inherited IRA distribution. When the K-1 is generated by H&R Block Tax software Line 5 “Other Portfolio and Nonbusiness Income” shows $8,000. So wasn’t $2,000 of the $10,000 given to the Beneficiary in November 2024 considered Corpus (Principal)? If this is true, it would be a Complex Trust.

By the way, thank you for answering my many questions so quickly. You are very knowledgeable! You must be a Tax Lawyer, CPA or both 😀

M-MTax

Level 15

Yes it would be complex, if you distributed $10,000 and the trust deducted $2,000 in expenses to leave DNI of $8,000. The extra $2,000 would be corpus.