Estate Planning

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How to Calculate Trust Accounting Income

As a trustee, you may need to use the Trust Accounting Income (TAI) formula to calculate the amount of income from the trust that you can distribute to beneficiaries. In some cases, you will need to use [more…]

How to Create a Payment Schedule for a Trust

As a trustee, you should establish a payment schedule for the trust to ensure that the trust has enough money when you make distributions to beneficiaries and when you pay taxes and service fees. To create [more…]

Schedule K-1 for Estates and Trusts: General Information

An estate or trust’s income retains its character, and so beneficiaries must be informed of this character. The Schedule K-1 (Form 1041) gives the beneficiary the specific allocation between all items [more…]

Schedule K-1 for Estates and Trusts: Alternative Minimum Tax

As fiduciary, you will pass through all the tax preference items to the income beneficiaries of the estate or trust on Schedule K-1, line 12, along with their income distribution. [more…]

How to Allocate Income on Schedule K-1 for Estates and Trusts

Income earned by a trust or estate that’s paid out to a beneficiary in the same year as it’s earned must be reported to that beneficiary on Schedule K-1, and that income maintains its character when it’s [more…]

Schedule K-1 for Estates and Trusts: Income Items

The best Schedule K-1 is the one that breaks down the income information into its component parts. Just because the trust or estate’s tax returns don’t require certain information, doesn’t mean the beneficiaries [more…]

Meet Probate Court and Tax Deadlines for Estates and Trusts

You must meet all probate court deadlines to avoid being removed as executor or trustee and to avoid fines or even jail sentences. File income tax returns, Form 1041, and estate tax returns, Form 706, [more…]

Handle an Estate’s Heirs, Legatees, and Beneficiaries Wisely

As the executor of an estate, interact with the estate’s heirs, legatees, and beneficiaries wisely and with care. Be sure to divide the estate’s personal property fairly among the heirs. Also be sure to [more…]

How to Deduct Fiduciary Fees for an Estate or Trust

When preparing an estate or trust’s income tax Form 1041, you may deduct fiduciary fees. Fiduciary fees are the amounts executors, administrators, or trustees charge for their services. If you’ve figured [more…]

How to Deduct Interest and Taxes for a Decedent, Estate, or Trust

When preparing a decedent’s final income tax Form 1040, or an estate or trust’s Form 1041, you may deduct certain types of interest and taxes. Interest paid on mortgages and stock margin accounts may be [more…]

Farm Income, Ordinary Gains, and Other Income for a Decedent, Estate, or Trust

When filing Form 1040 or Form 1041, you need to determine if the taxpayer (whether trust, estate or decedent) has earned any farm income, and calculate any gains and losses on the sale of business assets [more…]

Calculate Income from Rents, Royalties, Partnerships, and Other Estates and Trusts

In order to file Form 1040 or Form 1041, you will need to determine if the taxpayer (whether trust, estate or decedent) has earned any incomes from rents, royalties, partnerships, or other estate or trusts [more…]

What Happens after Estate Form 706 Is Complete?

The IRS will issue Letter 627, Estate Tax Closing Letterif it accepts your estate tax return (Form 70) as filed, or if you and the IRS reach an agreement after a 706 audit. The closing letter, although [more…]

Tips for Preparing an Auditable Estate Form 706

Because only estates with a high asset threshold have to file Form 706, the IRS audits a higher percentage of these returns than any other type. Prepare the return and all its exhibits with this in mind [more…]

How to Complete Part 5 of Estate Form 706

Part 5 of Form 706 is used to summarize the gross estate by carrying forward the asset totals from individual Schedules A through I and the deductions from Schedules J through U. This summarizing process [more…]

How to Complete Lines 8–16 of Part 4: Estate Form 706

In Part 4 of Form 706, lines 8–16 are designed to remind you of other property that may be includible in the decedent’s estate and, consequently, is taxable. Be aware that if you aren’t including this [more…]

How to Complete Lines 4–7 of Part 4: Estate Form 706

Part 4 of tax Form 706 provides the IRS with information regarding the estate’s decedent. Lines 4 and 5of Part 4 identify the decedent’s surviving spouse, if any, and any entity that will benefit substantially [more…]

What Are Estate and Trust Gift and Generation-Skipping Taxes?

As the administrator or an estate or trust, be aware of the gift tax and the generation-skipping transfer tax. Large transfers made during lifetime, may be subject to the gift tax. To pay the gift tax, [more…]

What Are the Decedent’s Final State and Federal Income Taxes?

As the administrator of an estate, you must file the decedent’s final Form 1040, U.S. Individual Income Tax Return. Surviving spouses may file a final joint return for the year of the decedent’s death. [more…]

What Are Excise and Local Income Taxes for Estates and Trusts?

If the estate or trust that you are administering owns vehicles of transportation, such as planes, boats, and automobiles, you may have to pay a yearly [more…]

What Are Estate and Trust State Intangible and Real Estate Taxes?

Instead of income taxes, some states have intangible taxes on assets such as stocks and bonds. If you are administering an estate or trust, check to see whether your decedent’s state has intangibles taxes [more…]

What Are Estate and Trust Income Taxes?

If an estate or trust earns income, that income may be subject to income taxes. Follow the federal government criteria for determining whether your estate, simple trust, or complex trust earned enough [more…]

Make Proper Payments from the Trust Income and Principal

As a trustee, you must know when to make payments from the principal of the trust and when to make payments from the income of the trust. For your trustee fees, create an equitable formula so that a percentage [more…]

Don’t Take Unsanctioned Shortcuts for an Estate or Trust

Treat your job as an executor, administrator, or trustee with care and act reasonably and responsibly. Realize that this job is a major, and often time-consuming, commitment to fulfill the wishes of the [more…]

Exercise Good Fiduciary Judgment for an Estate or Trust

As the executor or trustee, it is crucial that you use good fiduciary judgment. Seek sound professional advice, invest the estate or trust assets wisely, and pay beneficiaries and all bills on time. Be [more…]

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