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William Ellis, CPA
William Ellis, CPA, CPA
Category: Tax
Satisfied Customers: 296
Experience:  Over 15 years of experience in public accounting
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A while ago I asked a question to one of the many accountants

Resolved Question:

A while ago I asked a question to one of the many accountants on this site Here's what was asked by me initially:

I am an administrator of an estate. The final accounting has been submitted to the courts, which then I will be able to distribute to the heirs and close probate . My question is, I know I will be filing 2010 taxes, but how do the 2011 taxes work? Do I file this year too, along with 2010? Separately?

Optional Information:
State/Country relating to question: California


My response from this site:

Thanks for your question.
Yes, you would file for 2011 a short period final return for the estate on Form 1041. The 2011 return would be due 3 1/2 months after the month in which the estate was closed. For example, if you distribute all funds and close by January 31, 2011, the short period return from 01/01/11 to 01/31/11 would be due on May 15, 2011. Be sure to mark this return "Final". You can use a 2010 Form 1041 if the 2011 form is not yet available but be sure to fill in the tax period dates at the top of the form. It would be best to file the 2011 return separate from the 2010 return just so there is no confusion when they open the envelopes.

Best regards,
Edited by JK_CPA on 1/19/2011 at 6:20 PM EST

My new question for you...
I am getting ready to work on the final return. There were 8 heirs that received $6,400 and two that received $25,000, not a huge estate.

1-My question is, do I need to include them somewhere on the taxes that they received money?

2, Next question is, over the years that probate was open, the estate paid bond on a yearly basis. It was a complicated probate that involved little pieces of property and in the end cost the estate more money than it was worth. The very first tax return, the estate paid over $11,000+ in taxes because the initial probate was a retirement fund- 403(b). Is it possible to recoup some of the $11,000 based on the estate having to pay bond for all eight years? Do I pretty much copy my 2010 1041 tax return I completed in the regular tax season for the final? I guess if I am able to recoup some money for bond, the answer would be no. If there is a way to do that, could you include which forms I need to fill out? Both federal and state (CA).
Thank you,
Lisa
Submitted: 2 years ago.
Category: Tax
Expert:  William Ellis, CPA replied 2 years ago.

William Ellis, CPA :

Hello and thank you for allowing Just Answer to assist you further. Your 2010 Form 1041 should have included Schedule K-1s for each of the beneficiaries that showed their share of taxable/non-taxable income. If you are using tax software, there should be guides that show you where to enter this information. You will also enter that this is the final return for the estate and show the closing date. This should automatically show the distributions to the beneficiaries.

William Ellis, CPA :

Please explain what you mean by the estate "paid bond". If the estate overpaid its taxes in previous years, this amount should either be refunded or credited to the current year. If the tax was incorrectly calculated, the earlier return(s) can be amended. If neither of these are the case, then past years' taxes cannot be recouped. Please let me know if you have any additional questions, Bill.

Customer:

Hi,

Customer:

Hi, thank you for getting back to me. What I meant by bond, in order for myself to be the administrator of the estate, I needed to have a bond issued to protect the estate's money that was in an account (I guess the judge thought I was a liability handling $120,000 since I had just filed bankruptcy). I initially tried to do this "in pro per" but that is where the bond came into play. The bond cost the estate roughly $750 per year and the probate dragged on for like eight years!

Customer:

Excuse the bits and pieces being sent. Hitting return is submitting the info. My last question-- will the heirs be liable for tax? I don't even have their social security numbers if that's a requirement on the K-1 form. And will I use 2010 tax year since probate closed 1 month ago?

William Ellis, CPA :

These costs are deducted from the estate's income, right? They should be since this a requirement by the judge. The estate cannot get a tax credit for this cost, but the amount absolutely should be deducted.

Customer:

yes, deducted from the estate's income.

William Ellis, CPA :

Please don't prepare these returns by hand. The returns are complex even with little or no activity. Has the 2010 return been filed?

Customer:

yes, 2010 has been filed earlier this year

Customer:

will i need the heirs social security numbers? I know for a fact that I won't be able to get them.

William Ellis, CPA :

You'll need to amend it to properly show the beneficiaries names, addresses and SS#s. Has any of the funds been distributed to the heirs? If not, there may not be any tax impact on the heirs. But, the K-1s not only need to be issued with the return, they should also be reflected on their 2010 tax returns.

Customer:

Yes, all the money has been distributed 2 months ago to the heirs.

William Ellis, CPA :

If you can't get them, do what you can. Send the K-1 to those heirs and let them sort it out with the IRS.

William Ellis, CPA :

I've got to get my daughter dressed for school, so I'll check back in half an hour for any other questions. Thanks, Bill

Customer:

Well these heirs, unfortunately, are in their 80s and 90s and won't know what to do. Perhaps they may fly underneath the radar for a measly $6,400 if they don't do anything. I'm actually not really concerned with them, I'll send them their K-1s and they can figure it out. I only care about my main question of what forms I needed to submit to keep my name A-Ok with the IRS since I am the administrator.

William Ellis, CPA :

The best way to cover yourself is to buy the software and include as much information as possible. Most accountants try to set up the returns so that the income flows to the heirs, because individual tax rates are significantly lower than estate rates. The distribution of the property itself is not taxable to the heirs. Just the income generated in 2011 such as interest, dividends, capital gains, etc. Thanks again, Bill

William Ellis, CPA, CPA
Category: Tax
Satisfied Customers: 296
Experience: Over 15 years of experience in public accounting
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