Hi and welcome to Just Answer!
Should deductions be allocated to accounting income or corpus.
Deductible expenses are attributable to taxable income first and if anything left - these expenses are covered from corpus.
There are 3 beneficiaries (equal shares) - 2 individuals, one non-profit. I would like to make this the initial and final return. Is this possible?
Yes - that is possible. You need to have complete distribution of all assets and on the form 1041 - in the header - both boxes should be checked "Initial return" and "Final return"
Correspondingly - on the form K-1 - check the box "Final K-1"
Do I have to allocate the excess deductions to the beneficiaries and do they get a tax benefit out of this?
You may allocate the excess deductions to the beneficiaries - will or will not they be able to use any passed through deductions - depends on their individual circumstances.
Excess deductions for the final year are generally reported by beneficiaries on schedule A, line 23.
Let me know if you need any help.
Be sure to ask if any clarification needed.