Estate and Trust Tax Planning and Preparation
Estate & trust tax planning
Tax guidance for settling an estate or administering a trust, coordinated with your attorney to support informed decisions and timely filings.
- Tax filing requirementsIdentify applicable returns, including the decedent's final Form 1040, fiduciary income tax returns, and any federal estate tax return requirements.
- Estate tax year selectionEvaluate whether a calendar or fiscal tax year is appropriate for the estate.
- Beneficiary distributionsUnderstand how distributions affect the tax obligations of the estate, trust, and beneficiaries.
- Sales of estate propertyPlan for the tax implications of selling real estate, investments, or other estate assets.
- Inherited retirement accountsUnderstand the income tax implications of distributions from inherited IRAs and 401(k)s.
- Portability for a surviving spouseEvaluate whether filing Form 706 to elect portability may benefit a surviving spouse, even when no federal estate tax is due.
- Coordination with your attorneyAlign tax planning and filings with the administration of the estate or trust. Your attorney handles legal documents, probate matters, and legal advice.
Estate & trust tax preparation & filing
Preparation of estate and trust income tax returns, beneficiary tax statements, and related individual returns.
- Estate income tax returnsPreparation of Form 1041 to report income received by the estate after the date of death.
- Trust income tax returnsPreparation of Form 1041 for trusts with a fiduciary income tax filing requirement.
- Beneficiary Schedules K-1Preparation of Schedule K-1 to report each beneficiary's share of income, deductions, and other applicable tax items.
- The decedent's final income tax returnPreparation of the final Form 1040 for the year of death, coordinated with our individual tax services.
- North Carolina fiduciary returnsPreparation of Form D-407, the North Carolina income tax return for estates and trusts.
- Federal estate tax returnsPreparation of Form 706 when the estate exceeds the federal filing threshold or elects portability for a surviving spouse.
- Filing extensionsPreparation of Form 7004 extension requests for estate and trust income tax returns, along with estimates of any tax payments due.
- Late and prior-year returnsPreparation of outstanding estate and trust income tax returns to address overdue filing obligations.
What to bring to your consultation
Bring what you have. We'll help you identify anything else you need.
For consultation
- Applicable documents, including the death certificate, will or trust agreement, and letters appointing the executor or administrator
- Questions or concerns you would like to discuss
- Any IRS or state tax notices addressed to the decedent, estate, or trust
- An overview of the assets held by the estate or trust
For tax preparation
- The decedent's recent income tax returns
- Account statements showing balances as of the date of death
- Forms 1099 issued to the estate or trust
- Appraisals of real estate and other significant assets
- Records of income received and expenses paid by the estate or trust
- Records of beneficiary distributions, along with beneficiaries' contact information and taxpayer identification numbers
For tax planning
- A list of assets and their estimated values
- Details of planned property or investment sales
- Information about planned or requested beneficiary distributions
- Details of retirement accounts and beneficiary designations
- Contact information for the attorney handling the estate or trust
Questions executors and trustees ask
Does the estate need to file an income tax return?
A domestic estate files Form 1041 if it has gross income of $600 or more for the tax year, or if a beneficiary is a nonresident alien. A domestic trust files if it has any taxable income, or gross income of $600 or more. An estate that holds only a checking account may never reach that.
What's the difference between the final 1040 and the estate's return?
The final Form 1040 reports income the person received while alive. Form 1041 reports income the estate receives after the date of death. A dividend paid the week before death goes on the 1040. The same dividend paid the week after goes on the 1041. In the year of death, both are often required.
When is Form 1041 due?
The 15th day of the fourth month after the estate's tax year ends. For a calendar-year return, that's April 15. Form 7004 gives an automatic extension of five and a half months to file.
An estate can choose a fiscal year instead of the calendar year. That can make sense when the death came late in the year, and it's something to decide early on.
Does North Carolina have an estate tax?
No. North Carolina repealed its estate tax for deaths on or after January 1, 2013, so only the federal estate tax can apply. The state does tax the income an estate or trust earns, on North Carolina Form D-407.
Will the estate owe federal estate tax?
Most estates don't. Form 706 is required when the gross estate, plus taxable gifts the person made during life, exceeds the filing threshold for the year of death. That threshold is $15,000,000 for deaths in 2026 and $13,990,000 for deaths in 2025. It changes over time, so the figure that matters is the one for the year the person died.
When Form 706 is required, it's due nine months after the date of death. Form 4768 gives an automatic six-month extension of time to file. North Carolina has no estate tax of its own.
The estate is under the threshold, but there is a surviving spouse. Is Form 706 still worth filing?
It can be worth it. Filing Form 706 lets the estate elect portability, which passes the unused exclusion to the surviving spouse. That can matter a great deal later. An estate that wasn't otherwise required to file can make the election late, on or before the fifth anniversary of the date of death, under Revenue Procedure 2022-32. It's worth talking over with the estate's attorney before deciding.
How are distributions to beneficiaries taxed?
Generally, income the estate or trust earns and then distributes is taxed to the beneficiaries who receive it, not to the estate. Each beneficiary gets a Schedule K-1 showing their share, and it goes on their own return. Income the estate keeps is taxed on the estate's return.
The inheritance itself, such as the cash in a bank account on the date of death, is generally not income to the person who receives it. Withdrawals from an inherited traditional IRA or 401(k) are the common exception, and are usually taxable. The details depend on the will or trust and on what was distributed when, so it's worth going over before money goes out.
Start with a phone call
Let's connect
Have a question or ready to get started? Give Ryan Cornell, CPA a call. We'd be happy to hear from you and find a time to meet.