Estate Return Filed

[taxesbydot]

New client brought me their paperwork and it seems they have been self preparing and filing an estate return for about 10 years. There were no assets and no probate from the very beginning. They have left in the estate ID an annuity payment of around $10000 per year. How to correct this? Do I go ahead and file their 1040? He already filed the estate return for 2024. This has been a most unusual year!

[BobKamman]

So, you mean an estate income tax return, Form 1041.  (A coward dies 1,000 deaths, but wealthy Americans file only one 706.)  You can't say there were no assets, if there was an annuity that pays $10,000 a year.  Unless maybe someone didn't notify the insurance company of the death.  Was this maybe owned by a trust with an EIN, before death?  

Follow the money.  Where does the payment go?  Does it stay in an account that is not in the estate beneficiary's name?  Has anyone been paying tax on the distribution?  Have you seen the 1099-R?  Does it state how much is taxable?  

[taxesbydot]

Yes, I did mean 1041. And they did not inform the insurance company. I have not seen the 1099R. The spouse and her sister split the $10000. Client says roughly $500 per year is paid in taxes. 

That is all I know at this point. I do not do  1041 returns and not sure how to advise client.

[sjrcpa]

They need to advise the annuity payor of the death.

Come back when you find out whose name and SSN/EIN are on the 1099-R.

[taxesbydot]

Just got off phone with client. He assured me the 1099r is in the estate name and federal ID.

[jeffmcpa2010]

Did he provide you with a K-1 from the Estate (as there should be K-1 forms if there are distributions to the beneficiaries during a year.)

[BobKamman]

And what did the client say about what happens to the money?

[sjrcpa]

"The spouse and her sister split the $10000"

[taxesbydot]

When he was in and I asked about k1s I got that deer in headlight look we are all so familiar with. So, no k1s ever filed.

[sjrcpa]

So the 1041 as filed was probably wrong. Wonder what explanation they gave for the Estate being open for more than 2 years. Probably none since it "self-prepared" and has other errors.

It still needs to filed as long as the Estate is the Payee. But to the extent it was distributed to the beneficiaries they should have rec'd K-1s for their share of the income. No Estate level tax.

Curious - is there an estate bank account? I'm wondering how checks payable to the estate were cashed/distributed to 2 other people.

[jeffmcpa2010]

Were it I facing your situation I would (If the 1099R is truly in the name of the estate, and the $ got to the beneficiaries)

Offer to amend the 2024 1041, to correctly show the distributions and income to the beneficiaries, and the income distribution deduction on the 1041.

If the answer to the above is they don't wish to change it, I would hand him back his paperwork and wish him luck.

I would also inform him that the prior 1041's are likely incorrect and they and the personal returns should theoretically be amended as well.

[taxesbydot]

We will be having a conversation. Your advice is good. It never ceases to amaze me the messes people can make.

Thank you all for your comments.

[BobKamman]

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@sjrcpa wrote:

"The spouse and her sister split the $10000"

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Fast moving conversation, I didn't notice that message.  Now I wonder how an estate can pay only $500 on $10,000 income.  Maybe only $5,000 of it is taxable, and the company is withholding 10%, and the two beneficiaries figure that settles all the tax questions.