George has been appointed executor of his father’s estate. Henry died on April 1, 2018. All of Henry’s cash assets, including his bank accounts, his brokerage accounts and his IRA’s were subject to non-probate contracts, such as right of survivorship, pay-on-death or beneficiary designations. Therefore, none of these are included in Henry’s estate.

The estate inventory of property, worth in excess of two million dollars, includes Henry’s ranch on which his homestead resides, a vacation home in Aspen, a boat, a pick-up truck, his prized Cadillac and a tractor. His household contains the antique furniture collection left to him by his deceased wife and a substantial art portfolio he and his wife had collected over the years.  Henry’s income consisted of his social security benefits and a small royalty interest on an oil and gas lease.  Does George, as executor, need to file a 1040 individual income tax return for Henry and a 1041 income tax return for the estate? A 706 estate tax return?

Generally, a 1040 income tax return will need to be filed on behalf of a decedent. However, there are circumstances in which the income of the decedent will not rise to the level requiring a filing. That is true for Henry. Henry had received only three months of social security income in 2018. He had received no royalty checks during that period. His income, being less than the standard deduction allowed individual taxpayers, the filing of a 1040 tax return is not necessary.

If an estate generates more than $600.00 in gross income, the estate must file a 1041 income tax return. Although not limited to these, assets that can generate income include CDs, stocks, bonds, mutual funds and rental properties.

However, to generate income an asset must be a part of the estate. In Henry’s case all of his assets that could have generated income passed to persons designated by non-probate contracts. Therefore, none of these assets were included in his estate. Henry’s social security benefits ceased at his death, so they produced no income for the estate. George, consequently, has no obligation to file a 1041 income tax return for the estate.

The 1041 is not to be confused with the 706 estate tax return that must be filed by those estates worth more than $5.6 million dollars. Henry’s estate did not meet this threshold, so George will not have to file an estate tax return.

 

Sandra W. Reed is an attorney with Katten & Benson, an Elder Law firm in Fort Worth. She lives in beautiful Somervell County, near Chalk Mountain.