Filing a Fiduciary Return for a Revocable Trust After a Death
Once someone dies, an executor pays taxes on her estate and distributes her assets. If the deceased set up a trust, however, control of the trust's assets passes to a successor trustee. If you're the trustee, you're a a fiduciary, obligated to manage the trust for the good of the beneficiaries. Even if you're a beneficiary as well, you have to manage the assets impartially. Your duties include filing a tax return for the trust.
As long as the grantor -- the trust maker -- is alive, he reports the trust's income as his own and pays the taxes annually. As successor trustee, you report any income the trust's investments earn -- rent checks, stock dividends, capital gains -- using IRS Form 1041. You have to file 1041 if the trust has any taxable income, or a gross income greater than $600, even if it's not taxable. You have to apply to the IRS to get the trust a taxpayer identification number.
Death and Time
Almost all trusts file using the calendar year. If the grantor dies Sept. 13, you have to report the trust's income from Sept. 13 to Dec. 31. If the trust lasts more than a year, you file a 1041 for every year after that, as long as the trust lasts. You send in the form for each year by April 15 of the following year, just like a regular Form 1040. If that's not enough time, use Form 7004 to gain a five-month extension.
You may have to send in a state tax return, as well as a federal 1041. The exact trigger for trusts varies from state to state, but if the grantor died in a state that charges income tax, you probably have to file. Another common trigger is when one of the beneficiaries is a state resident. Some states, such as North Carolina, require that you file if the trust earns money from North Carolina sources. You may need a tax professional to figure out which states get a return.
There's one alternative that gets you off the hook for filing a return. If the executor is willing, she can file Form 1041 for both the estate and the trust's income. Your job in this case is merely to provide her with the tax information for the trust, and to make sure the trust has money for its share of the estate's income taxes. You file Form 8855 by April 15 of the year after the death to elect this option.
A graduate of Oberlin College, Fraser Sherman began writing in 1981. Since then he's researched and written newspaper and magazine stories on city government, court cases, business, real estate and finance, the uses of new technologies and film history. Sherman has worked for more than a decade as a newspaper reporter, and his magazine articles have been published in "Newsweek," "Air & Space," "Backpacker" and "Boys' Life." Sherman is also the author of three film reference books, with a fourth currently under way.