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Level 4

Why is the distribution for estate trust not showing on K-1 1041?

I have added estate and distribution data, but there is no amount showing the K-1.

This estate/trust for this year 2018, initial return. Final is next year.

Everything was sold and distribution was made for this year.

1 Best answer

Accepted Solutions
Level 14

Why is the distribution for estate trust not showing on K-1 1041?

While the Form 1041 TurboTax Federal interview is reasonably complete, there are a few places where the unsuspecting preparer with limited experience may find results not as expected. 

  • First PDF  Form 1041 Allocations to Beneficiary K-1 
    is example of a non-terminal year, when gains are not distributed.
  • See SECOND PDF Form 1041 FINAL YEAR Allocations to Beneficiary K-1
          re: FINAL year of Filing Form 1041 and allocation of all income, gain, expenses, and credits

The major omission that seems to occur is, after all income and expenses are entered and seemingly a Schedule K-1 should be complete, income items on the K-1 are not present.  See the attached PDF and walkthrough the places that the preparer of the Form 1041 and Schedule K-1 must check for completeness, as some times transfers are not automatic for lack of one or another entry being made.

FIRST PDF - A non-terminal year filing Form 1041

  1. Generally, most states do not provide or allow for a Trust to allocate capital gains to any beneficiaries except in the final year of the Trust when it is liquidated or terminated.  Estates can distribute principal and gain through the years of administration.  So the allocation issue is critical. 
  2. As said, most states do not allow gains to be allocated to the beneficiaries, and in fact will assess tax on the capital gains (state income tax) irrespective of any attempt at the Federal level to allocate principal to beneficiaries.
  3. Allocations have been made
  4. A Simple Trust must allocate all Ordinary Income to beneficiaries; a Complex Trust frequently does according to the provisions of the trust.
  5. Distributions can be allocated by percentage amongst the beneficiaries or alternatively by explicit amounts, as stated in the provisions of the trust document. 
  6. Example has a single beneficiary receiving 100% of Ordinary Income
  7. CRITICAL Checkpoint - Several calculations of a trust's income:
    "Accounting Income"  - Amount of total income that is possibly allocable to beneficiaries
    "Distributable Net Income" - Maximum amount of Taxable Income that can be distributed
  8. Form 1041 the Schedule B - CRITICAL Checpoint - this is where an entry frequently is made
    Line 7 is the taxable portion of Total Income  - DNI Distributable Net Income
    Worksheet where the allocation of total income is shown and must be checked
    Line 9 - this is an entry carried forward from the screen stating actually how much was distributed
                 this includes tax-exempt income as well as taxable
    Line 10 - if a Complex Trust, and if the trust provisions allow, principal may have been allocated
                   this is not a taxable transaction so there was no interview entry but line 10 must be manually entered.
  9. -11  The produced Schedule K-1
           The check-off box in the interview

Second PDF - Final Year Filing Form 1041

  1. In the very beginning of the interview at General Info - make certain to indicate this is the FINAL YEAR
  2. In General Info, verify Final Return checked, and enter date when trust/estate closed
     Since this is the final year, whether or no previously a trust was a Simple Trust, in the final year
      when all assets are distributed including accumulated gain and principal, it is now a Complex Trust
  3. Schedule D Part III - Line 18 preparer must verify and if necessary manual enter the accumulated gain to be 
            distributed to Beneficiaries. 
            If not certain review Schedule D  Line 16 
  4. Form 1041 Schedule B 
    - Line 9  verify and/or manually enter the Ordinary Income from Line C above
    - Line 10 Preparer must manually enter the total proceeds of this final year of the trust/estate that
                    were actually distributed to the Beneficiaries. !!!!
  5. Schedule K-1 complete and also see 7 - Distributable Income for Schedule K-1         

NOTE re: Capital Gains Taxation: 
As stated, most states do not provide that a Trust (as opposed to an Estate) can distribute gains and trust document provisions typically reflect this so that the gains are taxed, at both Federal level and State level, at the Trust and not the Beneficiaries.

In the Final Year, since it is at the discretion of the Trustee, gains may be retained for tax purposes within the Trust and be taxed at the Federal level and at the state level, OR all gains may be distributed to the Beneficiaries in which case the Trust will have no taxable income or gain, and all tax liability flows to the Beneficiaries.

8 Replies
Level 14

Why is the distribution for estate trust not showing on K-1 1041?

While the Form 1041 TurboTax Federal interview is reasonably complete, there are a few places where the unsuspecting preparer with limited experience may find results not as expected. 

  • First PDF  Form 1041 Allocations to Beneficiary K-1 
    is example of a non-terminal year, when gains are not distributed.
  • See SECOND PDF Form 1041 FINAL YEAR Allocations to Beneficiary K-1
          re: FINAL year of Filing Form 1041 and allocation of all income, gain, expenses, and credits

The major omission that seems to occur is, after all income and expenses are entered and seemingly a Schedule K-1 should be complete, income items on the K-1 are not present.  See the attached PDF and walkthrough the places that the preparer of the Form 1041 and Schedule K-1 must check for completeness, as some times transfers are not automatic for lack of one or another entry being made.

FIRST PDF - A non-terminal year filing Form 1041

  1. Generally, most states do not provide or allow for a Trust to allocate capital gains to any beneficiaries except in the final year of the Trust when it is liquidated or terminated.  Estates can distribute principal and gain through the years of administration.  So the allocation issue is critical. 
  2. As said, most states do not allow gains to be allocated to the beneficiaries, and in fact will assess tax on the capital gains (state income tax) irrespective of any attempt at the Federal level to allocate principal to beneficiaries.
  3. Allocations have been made
  4. A Simple Trust must allocate all Ordinary Income to beneficiaries; a Complex Trust frequently does according to the provisions of the trust.
  5. Distributions can be allocated by percentage amongst the beneficiaries or alternatively by explicit amounts, as stated in the provisions of the trust document. 
  6. Example has a single beneficiary receiving 100% of Ordinary Income
  7. CRITICAL Checkpoint - Several calculations of a trust's income:
    "Accounting Income"  - Amount of total income that is possibly allocable to beneficiaries
    "Distributable Net Income" - Maximum amount of Taxable Income that can be distributed
  8. Form 1041 the Schedule B - CRITICAL Checpoint - this is where an entry frequently is made
    Line 7 is the taxable portion of Total Income  - DNI Distributable Net Income
    Worksheet where the allocation of total income is shown and must be checked
    Line 9 - this is an entry carried forward from the screen stating actually how much was distributed
                 this includes tax-exempt income as well as taxable
    Line 10 - if a Complex Trust, and if the trust provisions allow, principal may have been allocated
                   this is not a taxable transaction so there was no interview entry but line 10 must be manually entered.
  9. -11  The produced Schedule K-1
           The check-off box in the interview

Second PDF - Final Year Filing Form 1041

  1. In the very beginning of the interview at General Info - make certain to indicate this is the FINAL YEAR
  2. In General Info, verify Final Return checked, and enter date when trust/estate closed
     Since this is the final year, whether or no previously a trust was a Simple Trust, in the final year
      when all assets are distributed including accumulated gain and principal, it is now a Complex Trust
  3. Schedule D Part III - Line 18 preparer must verify and if necessary manual enter the accumulated gain to be 
            distributed to Beneficiaries. 
            If not certain review Schedule D  Line 16 
  4. Form 1041 Schedule B 
    - Line 9  verify and/or manually enter the Ordinary Income from Line C above
    - Line 10 Preparer must manually enter the total proceeds of this final year of the trust/estate that
                    were actually distributed to the Beneficiaries. !!!!
  5. Schedule K-1 complete and also see 7 - Distributable Income for Schedule K-1         

NOTE re: Capital Gains Taxation: 
As stated, most states do not provide that a Trust (as opposed to an Estate) can distribute gains and trust document provisions typically reflect this so that the gains are taxed, at both Federal level and State level, at the Trust and not the Beneficiaries.

In the Final Year, since it is at the discretion of the Trustee, gains may be retained for tax purposes within the Trust and be taxed at the Federal level and at the state level, OR all gains may be distributed to the Beneficiaries in which case the Trust will have no taxable income or gain, and all tax liability flows to the Beneficiaries.

Level 4

Why is the distribution for estate trust not showing on K-1 1041?

Scruffy, I wanted to think you for your help. Late yesterday, I finally saw the pdfs with the screen shots. They were very helpful and answered a lot my questions on how to proceed.  The deceased daughter and I have decided to have a friend to do our the estate taxes. He has been teaching accounting and taxes at the master level and doing a tax business for over 20 years. Thanks again.
Level 14

Why is the distribution for estate trust not showing on K-1 1041?

Most welcome.  - Estate taxation - both just the 1041 annual filing, and the rare Form 706 and accompanying Gift 709 are complex and in many ways not comparable to your personal 1040.  For a reasonably simple and final 1041, if the asset data and distribution data are all presented to an accountant, the filing should be less than $1,000 even much less; but complex trusts run much higher.  

Given the complexity and the differences between initial and ongoing versus final year, I've tried to build these PDFs as pathfinders for those ambitious enough to do it themselves.
Level 4

Why is the distribution for estate trust not showing on K-1 1041?

I can not find either attachment that you are referring to.  I have verified I have no filters on to prevent it from opening them.

Level 20

Why is the distribution for estate trust not showing on K-1 1041?


@SandyJ1129 wrote:

I can not find either attachment that you are referring to.  I have verified I have no filters on to prevent it from opening them.


This is an old thread that migrated from the old AnswerXChange board to this one and most, if not all, attachments and screenshots did not make their way here. 

 

Hopefully, Scruffy will see this thread and edit his post to add the attachment.

 

@ScruffyCurmudge 

Highlighted
Level 14

Why is the distribution for estate trust not showing on K-1 1041?

@tagteam @SandyJ1129 @ErickaY @Raph 

 

For whatever reason, when tagteam's first note to me came in on July 18th, when I attemped to respond with a reply, the new  Community screen went into a "hang" or suspended state without my ability to enter anything.  I forwarded this to the Intuit team and this now is resolved.  So that said,

 

Here are the relevant attachments to my original post that was in the AXE forum and for reasons unexplained the PDF attachments never were transferred over!!


FIRST PDF - A non-terminal year filing Form 1041

  1. Generally, most states do not provide or allow for a Trust to allocate capital gains to any beneficiaries except in the final year of the Trust when it is liquidated or terminated.  Estates can distribute principal and gain through the years of administration.  So the allocation issue is critical. 
  2. As said, most states do not allow gains to be allocated to the beneficiaries, and in fact will assess tax on the capital gains (state income tax) irrespective of any attempt at the Federal level to allocate principal to beneficiaries.
  3. Allocations have been made
  4. A Simple Trust must allocate all Ordinary Income to beneficiaries; a Complex Trust frequently does according to the provisions of the trust.
  5. Distributions can be allocated by percentage amongst the beneficiaries or alternatively by explicit amounts, as stated in the provisions of the trust document. 
  6. Example has a single beneficiary receiving 100% of Ordinary Income
  7. CRITICAL Checkpoint - Several calculations of a trust's income:
    "Accounting Income"  - Amount of total income that is possibly allocable to beneficiaries
    "Distributable Net Income" - Maximum amount of Taxable Income that can be distributed
  8. Form 1041 the Schedule B - CRITICAL Checpoint - this is where an entry frequently is made
    Line 7 is the taxable portion of Total Income  - DNI Distributable Net Income
    Worksheet where the allocation of total income is shown and must be checked
    Line 9 - this is an entry carried forward from the screen stating actually how much was distributed
                 this includes tax-exempt income as well as taxable
    Line 10 - if a Complex Trust, and if the trust provisions allow, principal may have been allocated
                   this is not a taxable transaction so there was no interview entry but line 10 must be manually entered.
  9. -11  The produced Schedule K-1
           The check-off box in the interview

Second PDF - Final Year Filing Form 1041

 

  1. In the very beginning of the interview at General Info - make certain to indicate this is the FINAL YEAR
  2. In General Info, verify Final Return checked, and enter date when trust/estate closed
     Since this is the final year, whether or no previously a trust was a Simple Trust, in the final year
      when all assets are distributed including accumulated gain and principal, it is now a Complex Trust
  3. Schedule D Part III - Line 18 preparer must verify and if necessary manual enter the accumulated gain to be 
            distributed to Beneficiaries.  
            If not certain review Schedule D  Line 16 
  4. Form 1041 Schedule B 
    - Line 9  verify and/or manually enter the Ordinary Income from Line C above
    - Line 10 Preparer must manually enter the total proceeds of this final year of the trust/estate that 
                    were actually distributed to the Beneficiaries. !!!!
  5. Schedule K-1 complete and also see 7 - Distributable Income for Schedule K-1         
Level 4

Why is the distribution for estate trust not showing on K-1 1041?

Thanks for the help!  I appreciate it!

Level 14

Why is the distribution for estate trust not showing on K-1 1041?

most welcome