Estate Tax Filing - minimal assets. Is there income to the estate?

[ahsile]

Hi! My mom passed away in 2023. She left everything to me as her only child/sole beneficiary. The house which was fully owned (and it's contents which were not much after a break-in) was transferred to me automatically. Her bank account was transferred to an estate bank account once I became administrator of the estate. I paid her medical bills that remained. I paid the attorney for his work (more than it was worth in hindsight because they don't seem to know what they're doing). Then I paid myself the remainder, as instructed by the attorney. as the sole beneficiary. In that time, there was no income to the estate. I live in a different state than she did and where the property that I inherited exists. Supposedly since I am her child there is no "tax" on the money that I inherited or the property. However this even seems unclear after speaking with the attorney and "tax pro."

She had 2 life insurance policies. One was to cover the exact amount of her funeral and paid directly to the funeral home apparently. The other was an included benefit of her state pension and was initially payable to her brother. However, he passed away a couple years before and she never updated the beneficiary, so that was paid directly to the estate. It was a small $5,000 policy with 10% withheld in tax from payment to the estate. I received a 1099-R for this payment. This is where I'm unclear...

As far as I can tell, that life insurance payment to the estate is not income. There was nothing else received in any amount. Can anyone help me with what I need to file, if anything, for the estate and personally? I spoke with 2 different "tax pros" and got at least 3 different answers. 

Any help is so appreciated.

[ahsile]

I guess there is confusion about whether this was actually "life insurance" or technically some retirement benefit. All the benefits documents referred to it as life insurance, but I'm unclear.

[AmyC]

I am reading and see where you say the life insurance beneficiary was deceased. If there is no contingent beneficiary, this forces the company to give the benefits to the estate and it does become taxable.

Your case is complicated since normally:

A 1099-R for life insurance is often cash value withdrawal instead of an actual payout 

A payout, generally isn't taxable.

Your case is one of the exceptions in Life insurance & disability insurance proceeds - IRS.

[fanfare]

Generally it is cheaper for the Estate to distribute any taxable amount to the heir and let that person ( you)  pay the tax.

[ahsile]

Thank you. So my assumption that I do need to file a 1041, based on this 1099-R "life insurance" income seems correct.  At that point, I guess I will benefit from deducting allowable expenses as well. 

This is where the attorney's advice gets confusing in my POV... And it seems to be along the same lines of the other answer here about it being "cheaper" to pass the taxes onto the beneficiary (me).

When I "paid" myself the remainder of the estate account, as instructed and after all other expenses were paid, the money in that account was a result of 2 things: the check for $4500 from the pension "life insurance" after $500 was deducted as taxes from the initial $5,000 and the remainder was money from her bank account that existed when she passed away.  

All that said it seems I, as the admin of the estate, need to file form 1041. Is that $5000 the only income (based on the provided history obviously)? And I assume I also need to present myself a K-1 as the only beneficiary. What is to be included on that K-1? The K-1 being for "Income distributed from a trust or estate" makes it seem to me that the K-1 is just for that taxed $5000, correct? That does not include the money that I received that was from her existing bank account (which of course had already been taxed when she earned it). 

Lastly, can turbo tax handle this intuitively for me, and if so what option do I need to make this happen? ...Or should I just give it all up and find an actual tax person who knows what they're doing (not sure where to find one though)?

I've done my own personal taxes for YEARS and never had this many questions. lol

[RobertB4444]

You can file a 1041 with TurboTax here.

Based on what you've said here the $5000 seems to be the only income for the estate.  The K1 will show that income as paid to you minus any expenses that the estate had.  It will also show a $500 tax payment made to the IRS from the 1099-R.

Because you are the sole heir for this estate you can skip the 1041 and enter this 1099-R directly on your personal tax return.  That would mean that you would not be able to deduct expenses for the estate.  It would also mean that you would have to mail in your tax return and include a copy of the 1099-R with it with 'received as nominee' written on it.  That would delay the processing of your return for a while.  But you would be able to skip the 1041.

The 1041 process in TurboTax is a little more complex than the personal return.  But you have a pretty simple estate return so you should be ok.  If you run into any hiccups come back here with questions.

@ahsile