First 1041, please help!

Technical topics regarding tax preparation.
#1
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Hi, I have never prepared a 1041 (decedent's estate) return before. My first is a simple one, thank god, but even so I'm confused about a couple things.

1) I believe the estate (or at least the estate bank account) is now closed, but it looks like a refund will be expected on the 1041. Who gets the refund? How do I handle this on the 1041?

2) The estate got a disbursement from an HSA account on a 1099-SA. Does this count as income to the estate?

3) The largest income item was a total distribution from a 401(k). Taxes were withheld. Because 100% of the estate's income is being distributed to heirs, this results in zero taxable income and a refund. Does that explanation sound like I understand what's going on? (I know I am giving you very little information, but does that sound like a typical scenario?)

Thanks to much. I feel like such a dummy for not being better informed about estate returns. So far, all my clients have been living!
 

#2
JAD  
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1. The refund will presumably go to the trustee who will distribute it to the beneficiaries. It is not your problem.

2. I don't know.

3. Yes, it sounds like you know what is going on. Can the withholding be treated as paid on behalf of the beneficiaries and distributed to them on the K-1? That would avoid the refund in #1, right? Perhaps that option only applies to estimated tax payments.

Hopefully this moves you forward, and hopefully the bump will bring your thread to the attention of others more familiar with these details.
 

#3
sjrcpa  
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2) Was the money used to pay qualified medical expenses of the decedent? If yes, probably not taxable under the same reasoning that if the deceased received while alive and used for medical expenses it would not be taxable. I've never seen an estate get an HSA distribution, though.
If it was just cashed in I would think it is taxable income.
 

#4
HowardS  
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2) From pub 559:
The treatment of an HSA (health savings account), an Archer MSA (medical savings account), or a Medicare Advantage MSA at the death of the account holder depends on who acquires the interest in the account. If the decedent's estate acquires the interest, the fair market value (FMV) of the assets in the account on the date of death is included in income on the decedent's final return. The estate tax deduction, discussed later, doesn't apply to this amount.

If a beneficiary acquires the interest, see the discussion under Income in Respect of a Decedent, later.


If the decedent's spouse is the designated beneficiary of the account, the account becomes that spouse's Archer MSA. It is subject to the rules discussed in Pub. 969.

Any other beneficiary (including a spouse that isn't the designated beneficiary) must include in income the fair market value of the assets in the account on the decedent's date of death. This amount must be reported for the beneficiary's tax year that includes the decedent's date of death. The amount included in income is reduced by any qualified medical expenses for the decedent paid by the beneficiary within 1 year after the decedent's date of death. An estate tax deduction, discussed later, applies to the amount included in income by a beneficiary other than the decedent's spouse.
Retired, no salvage value.
 

#5
HowardS  
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Retired, no salvage value.
 

#6
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This forum is amazing. You guys are the best. I am so grateful for the help I receive here! So it looks like I am squared away for question 1 and 3, but I may have screwed up on #2.

Two 1099-SA forms were received, one addressed to the decedent and one to the estate. The one addressed to the decedent shows the distributions for qualified medical expenses while he was living, and the other shows the liquidation upon his death. I figured that because the second was addressed to the estate and was distributed after death that it should not be listed as income on his final return (already filed). I guess I need to amend the final return based on the pub. 559 guidance. Or can I just call it IRD and handle it that way? I hate amending. :(
 


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