Executors of wills or administrators of trusts held for a decedent are considered fiduciaries because they hold money or other assets on behalf of a beneficiary. The Internal Revenue Service requires these fiduciaries to file Form 1041 and pay any applicable taxes before transferring the trust or estate's assets to the decedent's heirs. Certain estates and trusts may be exempt from this filing requirement if their taxable income falls below a specified limit.
The minimum income threshold for filing a return is different for estates and trusts. The executor of an estate must file a tax return if the estate had over $600 in taxable income for the year. Trust administrators are required to file a return if the trust had any taxable income. Both trusts and estates must file if any beneficiary is a non-resident alien and there was any taxable income for the year.
The fiduciary can choose whether to file taxes based on the calendar year or on a fiscal year. Once this election is made, it cannot be changed in a subsequent year. If the trust or estate is based on the calendar year, the fiduciary must file his tax return by April 15th in the year following the beneficiary's death and every subsequent April 15th. If it is based on a fiscal year, the fiduciary must file on or before the 15th day of the fourth month after the end of the fiscal year. The IRS offers one automatic five-month extension of the filing deadline upon request. The trust or estate must still pay any required estimated taxes before the original due date of the return.
Taxable Income and Deductions
The fiduciary must report all income paid to the decedent after his death. Income that was already passed onto the beneficiaries as a distribution may be deducted from the trust or estate's gross income on Form 1041. The beneficiaries must report these distributions as income on their individual tax returns. Other income and deductions such as interest, dividends, capital gains and charitable contributions are treated the same as they would have been during the decedent's lifetime.
The trust or estate must pay quarterly estimated taxes if it is expected to owe more than $1,000 and its withholding and tax credits do not meet the required threshold. To be exempt from these tax payments, the trust or estate's combined withholding and tax credits must exceed the lesser of the prior year's actual taxes due and 90 percent of the current year's expected taxes due.
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