Dealing with the complexities of estate tax and fiduciary income tax compliance requirements can become even more challenging in the wake of a loved one’s passing. Two IRS forms, Form 706 and Form 1041, are central to this process. While these forms may seem daunting, working with an estate and trust planning advisor to understand the estate filing requirements and their differences can provide valuable guidance and help ease the burden of estate administration during an already difficult time. In this article, Emily Blackburn, J.D. CPA, Partner, details how and when these forms come into play and who may need to file them.
What is Federal Form 706, and When is it Required?
Federal Form 706, also known as the United States Estate (and Generation-Skipping Transfer) Tax Return, is used to report the value of a deceased person’s estate and determine the amount of estate tax due, if any. A “snapshot” of the value of the decedent’s assets and liabilities is taken on the day of death. Form 706 must be filed within nine months if the estate’s value exceeds the federal exemption amount (not including extensions).
The federal estate tax exemption is $13.61 million as of 2024; this amount may change in 2026, as the Tax Cuts and Jobs Act that increased this exemption may sunset and decrease the exemption back down to $5 million (indexed for inflation). Even estates below this threshold may need to file if they opt for portability of the deceased spouse’s unused exclusion (DSUE). For Minnesota, estates exceeding $3 million are subject to estate tax and may need to file Form M706.
What is Federal Form 1041, and When is it Required?
Federal Form 1041, also known as the U.S. Income Tax Return for Estates and Trusts, is used to report an estate or trust’s income, deductions, gains and losses. Unlike an individual tax return, Form 1041 is designed for estates and trusts and is filed by the fiduciary managing the decedent’s estate. It captures the income generated from the estate’s assets after the decedent’s passing (beginning after the date of the decedent’s final 1040 reporting period).
Form 1041 is required if the estate generates $600 or more in gross income during the tax year or if one or more of the estate’s beneficiaries are nonresident aliens. This form is required annually for as long as the estate remains open and continues to generate income until the assets are distributed to the ultimate beneficiaries. Expenses related to managing the estate can be deducted, and the estate can choose to file using either a calendar year or a fiscal year.
Helping You Get There…
Handling the intricacies of estate filing requirements can be overwhelming, especially in times of grief. An estate and trust planning advisor can provide support, helping to ease the process and ensure compliance with federal tax laws. Form 706 ensures that estate taxes are adequately assessed for larger estates, while Form 1041 helps report the estate’s income during the settlement process. By understanding these differences, executors and administrators can better manage estate obligations. Connect with Boulay’s Estate and Trust team to learn how we’re committed to helping you get there.