Form 1041

[chichi523]

My mother left money to her grandchildren and assets to my siblings and I, who disclaimed part of these assets in favor of our children.  As Executrix, when I fill in form 1041 it asks for the names, social security numbers and amounts the beneficiaries received.  Do I post just the cash distributed or do I include the value of the assets/shares/etc?

[RobertB4444]

You will post cash distributed as well but that is not a taxable entry.  It just shows the movement of cash that has already been taxed.  The K1s show each beneficiaries share of any taxable income - earnings that the estate had after your mother died.  Those are the only important entries.

@chichi523 

[chichi523]

Since the assets were distributed at the end of the year, all the taxes have been incurred by, and paid by, the Estate.  From what you are saying, I need only enter the cash which has been moved from the Estate to beneficiaries.  Let me know if I understood you correctly - and thank you for your speedy replay

[RobertB4444]

No.  What you need to enter into the return is the money that the estate earned after your mother died.  Did your mother's estate earn any money?  Any interest or payments made to her estate after she passed?

@chichi523 

[chichi523]

Thank you - yes, there were dividends and the Estate is paying the taxes on moneys earned in 2024.  The assets were disbursed after all the dividends and interest were earned by the Estate (the disbursement took place the last week in 2024) so yes, the liability belongs to the Estate which is paying the taxes due.  Does the disbursement of these assets (shares in mutual funds) to the children and grandchildren need to be listed anywhere (sorry for asking this another way but this is where I get confused). 

[dmertz]

If the income was distributed to the beneficiaries of the estate, the estate gets a deduction for this Distributable Net Income and the beneficiaries are responsible for the taxes on the income.  Because of this, for income received and distributed during the estate's tax year, the estate can't pay the taxes on the income.  Distributions to beneficiaries come first from the income received by the estate that year, making that income taxable to the beneficiaries.

In general, it is beneficial to have the income taxed at the typically lower beneficiaries' tax rates.

[chichi523]

Thank you for your reply - none of the income was distributed to the beneficiaries - the income was used to pay for the upkeep of the home (which was sold), taxes, etc  - at the end, before the sale of the home, the checking account (fed by the dividends) was close to zero -

[DavidD66]

A K-1 is a tax form filed to report income, deductions, and credits for pass-through entities.  The purpose is to communicate to the beneficiaries the amounts they need to report on their individual tax returns.  If none of the income was distributed to the beneficiaries, none of it would be reported to them on the K-1 as a distribution of earnings.  If you didn't make any distributions of taxable income or gains then you you would not report it on the K-1s.  Unlike a partnership or an S-Corp that also report income, deductions, and credits on Forms K-1, beneficiaries of an estate or trust do not have a taxable basis that needs to be tracked, so non-taxable distributions of principal and cash do not need to be reported.  

[dmertz]

You had said, "the Estate is paying the taxes on moneys earned in 2024," which suggested that at least some of the income received by the estate was taxable.  If all of the income was less than the estate's deductible expenses, then you are correct that no income was distributed, but it also means that the estate has no tax liability and that the estate is not paying any taxes on this income.

In the case of no DNI, the amount of assets distributed to beneficiaries would not appear on their Schedules K-1.  The only place it would potentially appear in the estate's income tax return is on line 10 of Schedule B, but I'm not sure that that is needed if there is no income to distribute.  With no income to distribute, there is no income-distribution deduction to compute.

[chichi523]

Thank you!