Open estate with no distributions in 2011

[Kea]

Just want to clarify. This is my first 1041 estate return that does not close in the same year as DOD.

Client passed away in Oct 2011. She had a brokerage account that was not closed until 2012. There were stock sales and dividends at the end of the year. Since the executor did not make any withdrawals or distributions from this account until 2012, I report all on the 1041 and do not issue any K1s for 2011? (Her other accounts were held jointly with one or more of her children and that income will be reported to them by 1099s.)

Or, do I pass all income / losses to benes in 2011? (I know I will for 2012.)

Thanks

[OldJack]

Remember, it is not the estate/trust distributions that cause income tax due to the government, it is the earning/receiving of the income by the estate/trust. If taxable income is earned in a tax year, someone has to pay income tax for that year. If the estate/trust passes the taxable income amount on a 1041-k1 to the beneficiaries they pay the income tax, otherwise the estate must pay the income tax. Who pays is determined by the terms of the estate/trust document and the executor/trustee, not by the tax preparer.

[Kea]

Thanks - that was the heart of my question. I know the income is taxed, but I wasn't sure if it HAD to be paid by the estate if no distributions. There is a will that just states everything goes to her children. So now I know the decision rests with the executor. (I never assumed it was my decision.)

Thanks!!

[OldJack]

>>There is a will that just states everything goes to her children<<

That may complicate things. A will document must be probated in the probate court to determine who gets what before distributions, also in some states the will must be presented to the probate court within one year or the will is not valid. If not valid then beneficiaries are determined by state law defaults. The estate probably must pay the income tax until the probate court determines/rules who the beneficiaries are (specified children or state law). Also, remember that an estate may have a fiscal tax year or calendar year determined by the first tax form filing.

[Kea]

Will has already been probated. Oldest child is executor (per will and per letter of testementry). Benes are her 3 named children. Perhaps my comment was too simplified. I was merely trying to state that the will (or LOT) didn't state anything about whether the estate or benes paid taxes on an open estate. Unless I don't know how to read / interpret it. That's entirely possible and why I'm asking questions.

Executor wanted to use a calendar year.

[OldJack]

I know you know this but:

If the estate elects for a calendar tax year the first 1041 would have been due not later than April, 15, 2012. If the estate elects a fiscal year the 1041 is due Oct. 2012.

If estate is calendar year and passes income for tax, the beneficiaries would be taxed on their 1040 for the year 2011. (Oct 2011 thru Dec 2011 income)

If estate is fiscal year and passes income for tax, the beneficiaries would be taxed on their 1040 for the year 2012. (Oct 2011 thru Sept 2012 income)

I doubt the executor knows much about estates and taxes.

[Kea]

The due date was 4/15/12, but we filed an extension giving us until 9/15/12. I "assumed" (I know that's dangerous) that all income would be passed through on K1s so no payment was made with extension. He knows that this affects 2011 and told his siblings to file extensions for their personal returns. (I have no idea if they did or not).

But thanks for the reminder - in case I hadn't known or in case it helps someone else.

[OldJack]

Thanks for the comment. I always try to write my opinions very clear so that other readers that might not know could understand. I also try never to use abbreviations other than LOL or LMAO.

PS: giving details sometimes prove me wrong. :)

[Kea]

For me it's always a personal battle when I write. My tendency is to include too much irrelevent info. I try to just put in the important facts. Sometimes I end up overcompensating and not putting in enough.

What can I say? I'm a "numbers geek" who doesn't like to write.