Personal Finance (Not Investing) • Estate Income Tax Question

I am helping my wife who is executrix of her mom's estate. I am not a lawyer, accountant or tax professional.

The estate's 2024 income consists of
- a long term capital gain of $120K from sale of the residence.
- a long term capital gain of $7K from sale of common stock
- qualified dividends of $400
- interest income of $1K

The will does not specify any time frame for distribution of income, but most of it has been distributed during 2024. My question is how to decide whether the estate should pay the federal and state (PA) income tax or pass this liability through to the 4 beneficiaries on a K1 form? Is this decision up to the executrix? I can't find anything in the form 1041 instructions other than saying the estate is "allowed an income deduction for distributions to beneficiaries."

From the perspective of minimizing taxes, it seems obvious the best path would be to pass the income tax liability through to the beneficiaries. The federal return for the estate calculates capital gains tax at the maximum rate and also imposes NIIT on most of the income. The beneficiaries would pay capital gains tax at less than the maximum rate and would not be subject to NIIT.

Thanks
Mun

Statistics: Posted by munemaker — Sun Dec 22, 2024 10:26 am — Replies 17 — Views 384

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