"
Where do I indicate this on the 1041 and his K-1?"
On Form 1041, this is nothing more than a question regarding whether any beneficiaries are skip persons.
In TurboTax Business, if you checked the appropriate box when entering your nephew's information as a beneficiary, the program would have checked the "skip persons box" for you (obviously, the "Yes" box would be checked).
Beyond the foregoing, there is nothing involving the 1041 or K-1 that needs to be done. However, you may have to prepare a 706-GS(D-1) and TurboTax does not support that form (see instructions at link below).
https://www.irs.gov/instructions/i706gsd1
