Trusts and Estates: Form 1041 and Fiduciary Returns

When someone dies, or when a trust earns income, the estate or trust becomes a separate taxpayer. The person in charge, called a fiduciary (an executor, administrator or trustee), may have to get an EIN, file Form 1041 and send beneficiaries Schedules K-1. Trust tax brackets are very compressed, so how and when income is distributed matters. This guide explains the basics for tax years 2025 and 2026.

Who files and when

The executor of an estate or the trustee of a trust files Form 1041. A revocable living trust is generally a grantor trust, which the IRS ignores for income tax. The grantor reports its income, and most people with revocable trusts can use the simplest optional filing method.

An estate can choose a calendar or fiscal tax year. A fiscal-year Form 1041 is due the 15th day of the 4th month after year-end. Most trusts use the calendar year.

The executor should get an EIN for the estate (free online at IRS.gov), file Form 56 to notify the IRS of the fiduciary relationship, and file the decedent's final Form 1040 for the year of death. The IRS notes that relying on an agent such as an attorney or accountant is not reasonable cause for filing late.

Tax rates for estates and trusts

Long-term capital gains and qualified dividends use thresholds that are just as low. For 2025, the 0% rate covers amounts up to $3,250 and the 15% rate applies up to $15,900. For 2026 those thresholds are $3,300 and $16,250. Undistributed net investment income can also face the 3.8% net investment income tax once adjusted gross income passes $15,650 for 2025.

Exemptions for 2025 are $600 for an estate, $300 for a trust that must distribute all income currently, $100 for other trusts and up to $5,100 for a qualified disability trust.

Example (tax year 2025, hypothetical): A trust that keeps $20,000 of taxable interest and distributes nothing has $19,900 of taxable income after the $100 exemption. Tax is about $5,350 ($3,777 plus 37% of the amount over $15,650). If a beneficiary in a lower bracket received the income instead, it would be taxed at that person's rates.

Distributions and the 65-day election

A distribution deduction generally moves taxable income from the estate or trust to the beneficiary, limited by distributable net income (DNI), which is a measure of the income available to distribute. The beneficiary receives a Schedule K-1 (Form 1041) and reports the amounts on their own return.

A complex trust or an estate may elect to treat distributions made within 65 days after year-end as paid on the last day of that year, which allows planning after the year closes. The election is made on Form 1041 by its due date and cannot be revoked. A related rule lets the fiduciary allocate estimated tax payments to beneficiaries on Form 1041-T by the 65th day.

A trust that was revocable can also join the estate's tax year under a section 645 election made on Form 8855 by the due date of the estate's first Form 1041.

Estimated taxes, penalties and the final return

An estate or trust must generally pay estimated tax if it expects to owe at least $1,000 after withholding and credits. Estates generally do not have to pay it for tax years that end less than two years after the date of death. The safe-harbor rules are 90% of the current-year tax or 100% of the prior-year tax, rising to 110% when prior-year adjusted gross income exceeded $150,000. See estimated taxes.

The late filing penalty is 5% of unpaid tax per month or part of a month, up to 25%, and the late payment penalty is 0.5% per month up to 25%. For returns due in 2026 that are more than 60 days late, the minimum late-filing penalty is the smaller of the tax due or $525.

Illinois notes

Illinois estates and trusts file Form IL-1041, due the 15th day of the 4th month after year-end, with an automatic six-month extension to file. Tax is still due on the original date. Illinois taxes estates and trusts at a flat income tax rate (the individual rate is 4.95%) and also charges personal property replacement tax, which is 1.5% for trusts. Grantor trusts do not file Form IL-1041. For tax years ending on or after December 31, 2026, Illinois requires trusts and estates to add back gain excluded federally under the qualified small business stock rules.

Common mistakes

• Not getting an EIN or filing Form 56 early
• Missing the $600 gross income filing trigger
• Paying beneficiaries without tracking DNI
• Leaving income in a trust at the 37% rate without checking the 65-day election
• Not coordinating the final Form 1040 with the estate return
• Forgetting the Illinois return

How we can help

We can prepare Form 1041, Schedules K-1 and Illinois fiduciary returns, plan the timing of distributions and coordinate with the estate attorney. We can also prepare the decedent's final return. See estates, trusts and inheritance, individual tax preparation and estate and gift tax basics.

Frequently asked questions

General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.