Orange County Estate Planning Lawyer Blog
SORT OUT WHAT NEEDS TO BE FILED. A routine part of trust administration or probate administration is for the Probate Executor or the Successor Trustee of a living trust to sort out the income tax situation. First, you have to determine if the individual income tax return filings of the deceased are up to date. Individual tax returns, form 1040 federal and form 540 state are due each April 15 for the previous year. Thus, 2016 returns were due on April 15, 2017 and so on. It is the responsibility of the Executor or Successor Trustee to make sure the proper returns are filed.
INDIVIDUAL RETURNS FOR THE YEAR OF DEATH. Individual income tax returns are due for the year in which a person dies, even if they do not live until the end of the year. Thus, if a person dies on October 10, 2016 for example, the normal individual returns for 2016 would have been due April 15, 2017. The due date can be extended 6 months by filing extension request forms by April 15. The returns filed should check the box “final return” and state the date of death of the deceased. If you forget to check the box of it being a final return, then the IRS will keep sending you letters in later years asking for returns to be filed.
FIDUCIARY RETURNS FOR THE YEAR OF DEATH. In addition to the individual tax returns, fiduciary income tax returns, forms 1041 federal and 541 for the state are due if the estate or trust has income received after the death of the person involved. (If the income is below the filing limit for that year the fiduciary returns may not be due but there may be reasons to file them anyway so the trust has a complete filing history.) Thus, in the above example of a person who died on October 10, 2016, there would need to be fiduciary tax returns filed to report the income received from October 10 until December 31, 2016. Those returns would be due April 15, 2017 but can be extended 5 months until September 15 if extension application forms are filed by April 15. This situation typically occurs where the trust or estate has income earning assets such as bank accounts or stock market accounts or rental properties.
FIDUCIARY RETURNS FOR FOLLOWING YEARS. If there is reportable income in years after the year of the death of the person involved, then fiduciary returns need to be filed. The filings must continue until the trust or estate is finished and all assets paid out to the beneficiaries. For the last return, the “final return” box should be checked. Sometimes trusts and estates go on for years. This depends upon the terms of the estate distribution as stated in the Will or the Trust involved. As a planning suggestion, remember that where a trust or estate is to continue for a long period of time such as where trust or estate money is to be held for minor children until they reach certain ages, returns will need to be filed each year.
