If the final 1041 distributes all income to beneficiaries on their K-1 and the income gets reported on their respective 1040's and flows through to their state returns does this preclude the need for the trust to file a state tax return?  The 1099 shows the state to which the fiduciary of the trust resides in.

That would be entirely dependent upon the state; there are slightly different rules for many of them.

See https://www.actec.org/assets/1/6/Morrow_State_Residency_and_Source_Income_Factors_for_Taxation_of_Ir...

This is from Maryland website:  Maryland follows the federal income tax treatment for fiduciaries of trusts and estates. Under the federal income tax rules, generally any income that is distributed by the fiduciary of the trust or estate during the tax year is not taxable to the trust or estate. Instead, that income is taxable to the beneficiary. Any income not distributed or partially distributed by the fiduciary of the trust or estate during the tax year is taxable to the fiduciary of the trust or estate.

Based on this information do you think only a 1041 needs to be filed and the income would then be automatically distributed to respective state tax returns?  I could then not have to prepare the 504 for Maryland even though have received trust interest income and 1099 for Maryland?

Yes, regardless of the State one should always file a final return with the IRS and the "residing state". It is a record keeping system for the States, that is all. 

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@ron6612 wrote:

Based on this information do you think only a 1041 needs to be filed and the income would then be automatically distributed to respective state tax returns? 

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Did you even bother to read the information at the link I provided in the post immediately above your post? 

In short, if the estate meets the threshold income requirements and is a resident estate (or non-resident estate with MD source income), then a state return is required to be filed.

I now have to file an amended simple final 1041 in 3025 after the first final 1041 was filed for 2021. $5000 of interest income was reported for unclaimed property found and there was 3500 of legal expense. Net income is 1500 if I don’t charge administrative time for being fiduciary and finalizing the situation. Can the trust then just pay the 150 of taxes at the 10% rate and not do any else such as distribute back to myself and sister the 1350 as beneficiaries or have the estate pay the additional tax?  

If you are amending Form 1041, you would prepare the return exactly as it was originally filed. In most cases, you would prepare Schedules K-1 for the beneficiaries, and they would pay any tax on the allocated net income. The 10% tax rate for an estate may not apply to the beneficiaries' returns.

I did a final complex 1041 in 2021 for my mother’s estate after she passed in 2020. We distributed all trust income to my sister and me. Then 5 years later we found some unclaimed stock and the proceeds were given back to us by state of NJ. The only taxable income was 5000 of interest and the attorney fee for probate was 3500. I was told to just do an amended simple final 1041 for those two items. Way too complicated to show everything again in this amended simple final. I just want to show those two items and can attach an explanation if possible. If that is okay wanted to find out about the tax on the 1500 of income and if anything needs to be distributed or just left as is?

There may be expenses for your work on the follow through to obtain the unclaimed income. Examples of that could be mileage, postage, or any other actual expense you had to accomplish receipt of the income. Example of expenses that can be used:

• Court costs
• Accountants' fees, 
• Appraisers' fees, etc. 
• Cost of storing or maintaining property, including documentation of actions.  

Simply adding your labor as a cost would not be sufficient as a deductible expense, however if you tie it to the details required to accomplish the results of receiving the income, then the estate can handle the entire return.

Amending a 2020 return would not be my advice since it's beyond the statute. The income was received in 2025. You can attach a statement of explanation for filing another final return in 2025.

If you remain unsure of how you want to handle it you should seek professional assistance for preparation. In this forum we cannot advise the actions you should take as far as distribution.

Beneficiaries receiving income from a trust or estate report that income (usually via Schedule K-1) but cannot deduct their personal labor. 

@ron6612