My mother-in law passed away in Nov 2020. We filed tax returns on her behalf during the last few years as my wife was the Power of Attorney (& fiduciary), was jointly listed on all bank and investment accounts, and a co-trustee on her mother's revocable trust. Our understanding was there would be no tax consequence since no transfer of funds occurred (due to joint listing/access on all accounts). When searching Turbo Tax discussions on filing requirements for deceased individuals, I found the following:
"With the exception of funds inherited in the form of a retirement account (e.g., IRA, 401(k)), an inheritance is generally not taxable on the federal level."
"Revocable trusts (Grantor Trusts) are not required to file Form 1041."
And, it appears the IRS indicates that there are no inheritance taxes on estates less that $11.58MIL (our mother-in law's estate was in the small six figures).
Putting all of this together, why would we have to file a Form 1041 if: a) the estate is less than $11.58MIL; b) the trust was a revocable trust; c) there was no transfer of assets (my wife was a co-trustee and jointly listed on all accounts). While the Form 1041 instructions make it appear that a Form 1041 must be filed for 2020 (decedent trust requirement for 1099 income > $600), that requirement seems to be in conflict with the above. And even if my wife liquidates the trust in favor of placing the funds with a different investment firm, wouldn't she be protected from any tax liability due to the $11.85MIL limit, thus eliminating the need for the Form 1041?
