Form 1041 for Trust

[TP82]

I was contacted by a former client's daughter about preparing a return for their trust.  The trust was established in 2001 and the daughter was the trustee.  No returns have been filed for the trust as the mother's assets and annuity were never moved into the trust.  The client passed away in 2021 and the daughter had an attorney apply for an EIN for the trust.  There is currently minimal (less than $600) of income by trust.  They are ready to close the trust and distribute the money left in the bank account.  What returns need to be filed?  The client was a resident of California and the daughter is a resident of North Carolina.  

[sjrcpa]

Simple trust or complex trust?

If it was never funded, how does it have income?

Read the 1041 instructions for Who Must File. There are income thresholds which differ for different types of trusts.

Perhaps there are estate 1041s to file, too.

[TP82]

It is a simple trust.  The income were dividends from an insurance policy.  As far as income, I don't think they need to file but don't I have to file a final return to close the trust?

[Skylane]

.. assuming the annual income would not generate a tax, I’d agree that filing an initial/final 1041 for the trust would get the EIN closed out. I’m not familiar with the cali or NC filing requirements. 

@SJR comments and Q about the estate should be considered

[sjrcpa · Accepted solution]

"The income were dividends from an insurance policy"

This policy was owned by the trust?

Are these "dividends" taxable? Usually dividends reduce the premium owed.

[TP82]

Thanks for the feedback.

[BobKamman]

IRS notices with trust EIN's always say the trust must file a 1041, but that does not apply if the trust (or estate) does not have income more than the filing requirement.  If the trust was not funded, was there an estate?  Has it been filing 1041's?  My guess is that it has not, because the preparer for that would also do the trust return, and should have elected to treat both as one entity.  

IRS doesn't "close out" EIN's issued to trusts and estates because there are just too many of them that don't have to file.  Any time you're dealing with California, though, it's never a bad idea to feed the Golden Bear with some paperwork if it keeps FTB off your back.