topic When File "Final" Trust Return in Business & farm

When File "Final" Trust Return

jonic — Tue, 02 Sep 2025 16:43:44 GMT

As Trustee, I have been distributing funds in a Trust from when my mother passed away. It involved 2 minor children as beneficiaries at the time of her death, so the funds have been being slowly distributed per the trust terms. By the end of 2025, all but $6K will have been distributed, all due to 1 of the 4 beneficiaries. (Just saving some for any remaining expenses). There will not be any realized trust income this year or next year. However, there is a carryforward loss.

1. Can I file the final trust return for 2025, knowing there will not be any trust income in 2026? Or do I need to file a return in both 2025 and 2026, making 2026 the final year?

2. My understanding is that the carry forward loss is passed down to the beneficiaries via the K-1. At this point there is only 1 beneficiary still receiving trust funds. The other 3 beneficiaries have been paid in full. Does the carry forward loss get proportionally distributed based on the original trust allocations? In other words, I would issue a K1 for all of the beneficiaries in the final year, even though 3 of them did not receive a distribution this year? (They are still entitled to their portion of the carry forward loss, correct?)

Thanks for all your help!

Re: When File "Final" Trust Return

M-MTax — Tue, 02 Sep 2025 17:24:24 GMT

@jonic wrote:
....do I need to file a return in both 2025 and 2026, making 2026 the final year?

You file the final 1041 after the trust terminates which is typically when all assets have been distributed except for a "reasonable amount which is set aside in good faith for the payment of unascertained or contingent liabilities and expenses....".

See https://www.law.cornell.edu/cfr/text/26/1.641(b)-3

Re: When File "Final" Trust Return

M-MTax — Tue, 02 Sep 2025 17:26:16 GMT

@jonic wrote:
......I would issue a K1 for all of the beneficiaries in the final year, even though 3 of them did not receive a distribution this year?

Yes, if they're entitled to receive their share of the loss carryover.

Re: When File "Final" Trust Return

jonic — Tue, 02 Sep 2025 17:48:40 GMT

Thanks. If the trust doesn't terminate until 2026, and in 2025 there is no income, but I make a distribution to the beneficiary, do I need to file a return for 2025? (Then I would file the final return in 2026 when I make the final distribution, and distribute the carry forward loss to the beneficiaries via K1.)

Re: When File "Final" Trust Return

M-MTax — Tue, 02 Sep 2025 20:19:13 GMT

No, not necessary for 2025 if there is no income but you need to track your carryforward, and I don't think the software will do that for you if you skip a year.