Recently deceased parent with Trust, how do I do a 1041 with no income or disbursement of money yet

[daurkin]

Here is my scenario and I'm getting stuck.

Family member passed away last fall, and they had a revocable trust. I am the successor, and it was executed just before the end of the year. The IRS sent me the SS-4 form with the EIN and instructions to file the Form 1041 by 4/15 this year.

There were very little liquid assets added to the trust, couple thousand dollars from a bank account. The house was in the trust already and it's sitting there getting cleaned out and ready to be sold. I've been using the money from the account to pay the house mortgage until it's sold so the loan doesn't default.  

Do I file a 1041 for this year and fill it out with zero income and disbursements or do something to extend it one more year when the trust is closed out? I don't want to upgrade to the business version of Turbo Tax if it just spits out a nearly blank form for me to file.

[Anonymous_]

You do not have to file if the trust has no taxable income (or gross income of $600 or more).

See https://www.irs.gov/instructions/i1041#en_US_2021_publink1000285943

[daurkin]

Thanks. Feels strange to just let it linger like that. And I haven't found anything on the instructions about how to properly not file a return if it's under $600.

I noticed on the 1041 form it has a check box for "has the decedent’s estate has been open for more than 2 years".  That's what made me wonder if this is focusing on trusts that should be disburse and closed within a year or two.

[Anonymous_]

That is only applicable to estates.

[daurkin]

Thanks to @Anonymous_ and another financial adviser I found the following answers to my scenario. 
1. If the estate does not make any income from the sale of property owned by the trust or have any Dividend and Interest made from stocks and things like that, I don’t need to file the 1041. 

2. I may get a letter from the IRS asking why I didn’t file a 1041 for the year and if so that is when I can respond with my scenario and that would be it. 

3. I did make payments to the mortgage after he passed and the mortgage was transferred to the Trust’s EIN. Therefore the only tax return that can claim the mortgage interest and property tax benefits is if I do a 1041. But the cost of that is around $200 and without taxable income, the tiny deduction wouldn’t really benefit me. 

4. This year when I sell the estate, I will need the 1041 to claim the capital gains of the sale minus other stuff and disbursement of inheritance. 

[DianeW777]

You are correct.  The filing requirement for estates and trusts (Form 1041) is taxable income of $600 or more.  If your estate does not meet that amount then a tax return is not required to be filed. The corpus is not income. The corpus of a trust is the sum of money or property that is set aside to produce income for a named beneficiary.

If you should receive a letter from the IRS, (not likely unless they have income documents that indicate a return should be filed) you can show proof of income and that it did not meet filing requirements.

Deductions are not required to be reported when a tax return is not required and as you indicated would not provide benefit to the estate.

You can file the first and final return when the estate assets are sold.  Any gain or loss would flow through the K-1, from the estate return,  to the beneficiary and get reported on the individual return.

[lthorrat]

Hi, 

I have a similar situation.  I am the trustee of my mother's living trust.  She died in Dec. 2020.  Her funds were invested and did earn income in the form of dividends in 2021, so I have to file.  My problem is I'm not clear if this is a simple or complex trust.  I'm thinking complex.  While there were no distributions from the trust in 2021, technically the trust is split three ways with 2 shares that can be distributed and 1 that is held for a minor with stipulations as to how and when they receive their portion.

I'm not sure how to describe this on the 1041.  Even though there were no distributions do the beneficiaries that could have received funds have to have a K-1?

[Anonymous_]

The type would be dictated by the governing instrument. If you were required to distributed income currently (even if not actually distributed), then you would indicate that the trust was a simple trust in TurboTax.