What is the difference between an Estate Tax Return and a Trust Tax Return?

That’s a good question. An Estate tax return is filed on Form 706 and used when a person dies and their estate is worth more than $5.43 million. The amount over $5.43 million is taxed on the Form 706. Since most people do not have an estate that large, they do not have to file the Form 706 because under that amount is not taxable.

A Trust tax Return is filed on Form 1041 and is used in a lot of different situations. The most common use of a Trust Tax Return is when a person dies, the activity up to their death goes on their final 1040 but the taxable activity after death such as interest income, dividends and other income go on a Trust Tax Return until the estate is distributed to the beneficiaries in the decedents Will. Once the source of the income is distributed to the beneficiaries, the Trust Tax Return in the decedent’s name is no longer needed since the income is now in the beneficiaries’ name.  Sometimes a trust is formed so the decedent can control her money even after death. She puts her money in a trust that is run according to her wishes. So the principle money is never distributed, only the earnings of the principle funds go to the beneficiaries. A Trust Tax Return will be due every year to report the earnings of the trust that is distributed and taxable to the beneficiaries.

Call H&S Accounting for all your tax preparation needs and let our years of tax expertise save your tax dollars.  We are your trust, business and individual tax experts.

Tim Walch, CPA