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Richard, Tax Attorney
Category: Tax
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Experience:  29 years of experience as a tax, real estate, and business attorney.
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Hello. I am confused about the need for IRS form 1041. After

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Hello. I am confused about the need for IRS form 1041. After my mother died, I used the Small Estate Affidavit to claim her BofA savings account worth about $45K. I placed the $45K into a Trust Distribution account with the new EIN that I got from the IRS. My question is, is the $45K inherited money?...or is the full $45K counted as taxable income to the new account/EIN?? My mother has Living Trust Documents that give all monies to me and my two brothers, BUT she never actually went to BofA and put her accounts under the name of the trust (that's why I needed to use the small estate affidavit). Thanks.
Welcome! My goal is to do my very best to understand your situation and to provide a full and complete answer for you.

Good evening. Was this money in a tax-deferred retirement account or simply a regular savings account?
Customer: replied 3 years ago.

Just a regular savings account.

Thank you. In that case, there is not need to file the 1041 or any estate tax return. This is an inheritance and not income and thus not reportable as income. And, because of the small amount, it is subject to no Federal or CA estate tax or filing requirement.
Customer: replied 3 years ago.

Thank you! I have a related question. I've also had to use the small estate affidavit form to claim my mother's tax-deferred IRA, which is only about $17K. I want to distribute the full amount to my brothers since he is in the lowest tax bracket. What form do I use to "designate" that I distributed the full amount to him? Thanks.

You're welcome. Who is the named beneficiary on the IRA? If not your brother, is he a secondary beneficiary? Thanks.
Customer: replied 3 years ago.

That is where I ran into a problem with BofA. They claim that there was no named beneficiary, which I just don't believe. I think they just lost the paperwork. So, that is why I needed to use the small estate affidavit to claim the money. I want to deposit into the Trust distribution account, then distribute it to my brother for tax purposes.

In that case, it goes to the estate. Are you and your brother the only beneficiaries of the estate?
Customer: replied 3 years ago.

The beneficiaries of the estate are my two brothers and myself. So, for the IRA amount I need to use 1041 correct? For tax purposes, I want to distribute the $17K to my brother who is in the lowest tax bracket. How do I officially designate for tax purposes. Thanks.

In that case, what you want to do is instruct the IRA provider to change the name and social security number on the IRA to the name and SSN of your brother as a beneficiary of the estate. You and your brother will need to deliver the IRA an Affidavit of Disclaimer of Inheritance for this IRA. Then, with regard to the tax treatment for your brother....when you inherit an IRA from someone other than your spouse, there are several alternatives. You cannot treat the IRA as you would your own...i) you can spread out the distributions, but the entire account balance must be withdrawn by the end of the fifth year that you took over the account, subject to subparagraph (vi) below; ii) IRA beneficiaries are not subject to the 10% penalty even if they are under age 59 1/2; iii) you can take a full, lump-sum distribution; iv) any money taken out is taxed as ordinary income for the year withdrawn; v) if the decedent had already begun taking the Required Minimum Distribution, then the non-spouse beneficiary must continue taking out distributions at least at the same rate; vi) if the IRA account owner had not already begun taking his or her RMD, then the IRA beneficiary has the option of "stretching" the distributions by electing to receive distributions according to his or her own life expectancy instead of the deceased IRA owner's life expectancy table.
Customer: replied 3 years ago.

The way that it is playing out is that BofA is going to issue a check for the $17K made out to the Trust distribution account. So, effectively, the estate is taking a lump sum. I want to deduct that amount from the estate by distributing it to my middle brother who is in the lowest tax bracket so that taxes owed on it would be paid according to his level. Would I be able to document all this on the 1041 form?

Then, report it on the 1041 and allocate the IRA income to your brother by the K-1.
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