Estates & Trusts

Income tax filings for estates and trusts have some unique complexities which do confuse clients. Some of the more common questions our firm is asked are addressed on this page. One of the most frequent questions concerns what type of returns must be filed if an individual dies. There are several types of returns that an executor could be required to file for a decedent’s estate.

Federal Form 706

When an individual’s gross estate is $5 million or more, the executor is required to file a Federal form 706. Think of the form 706 as the balance sheet of the estate where the estate tax is derived from the total value of the estate. The vast majority of estates are under $5 million. Due to the fact that the filing requirement has been increased to $5 million, there are fewer estate filings for the IRS to review. Obviously with less 706 filings, the IRS will be reviewing the more limited pool of filings with greater scrutiny. Cromwell & Company will prepare your filing and ensure your filing is completed accurately and on time.

The 706 filing is in addition to any state filings and Federal Form 1041 filings. For example decedents in the State of Maryland are required to file a MD estate tax return when the gross value of the estate is over $1million. Generally most estate tax returns at the state level derive their calculations from the preparation of the form 706. Many states have eliminated or do not have an estate tax. There are approximately 16 states that continue to have an estate tax requiring a separate filing from the Federal filing.

Federal Form 1041

When the income derived from the estate or trust is over $300, then the executor is required to file a form 1041. Executors should envision the 1041 as the income tax return of the estate. The 1041 return will tax the income that is derived from the assets of the tax return. Common income items may include but are not limited to:



Capital Gains

Rental Income

Royalty Income

Most states require a filing to compliment the Federal form 1041 filing.

The above is a very brief overview of estate taxes and the types of filings required by an estate executor. If you have additional questions, please feel free to contact Cromwell & Company.