A fellow accountant asked me a question about a 1041 that he is doing one pro bono for a small estate. His question made me doubt my own understanding about this topic. Here are the facts:
An elderly woman died with a relatively small estate. About $10,000 in principal, and another $200,000 that came in from a pre-tax retirement account that had no beneficiary. Hence why it all came into the estate. The executor distributed it all into an estate bank account.
The deceased woman left a simple will that splits her estate 50/50 between a friend and a church. There are a couple of small complications not worth getting into. The main thing left to do is to file the 1041 and K-1s and pay the beneficiaries.
The client, who is the executor, is convinced the estate will owe taxes on all $200,000 regardless. The accountant says it will all be deducted and pass through to the beneficiaries if the executor actually distributes the $200,000 before the year ends. I agree with the accountant, but I'm fairly certain the 65 day rule would apply here as well.
Is there anyone with more 1041 experience who can chime in? Much gratitude!