Wayne Pa Probate Lawyers – 7 – Court Accountings
Certain procedures must be followed when reports are prepared to explain how the assets in a Pa Estate or a Pa Trust were managed. Approved fiduciary accountings require the separation of principal and interest. You can not commingle funds that are considered principal with those that are considered income.
- Principal = original investment + capital gains – capital losses – expenses – distributions
- Income = money generated from the investment or use of principal
The main reason for keeping principal and income in separate accounts is that the beneficiaries of income in a trust or estate may be different than the beneficiaries of the principal in the same estate or trust.
Fiduciary Tax Returns – Form 1041
A Pa Trust or a Pa Estate is considered a separate legal entity from an individual who may be a beneficiary of that trust or estate. Therefore, it is incumbent upon the fiduciary administering the estate or trust to file a federal tax return under certain conditions.
The IRS requires a trust to file a tax return if it has any taxable income or has gross income of at least $600, regardless of whether it is taxable or not. Estates must file Form 1041 if they have gross income of $600 or more. A fiduciary must also file a return if any of the beneficiaries of the estate or trust is a non-resident alien.
Form 1041 is similar to the 1040 return used by individuals. The form is designed so estates and trusts can report income, deductions, gains, losses and any other pertinent financial information. Before funds or assets can be distributed, any tax liabilities of the estate or trust must be satisfied.
Closing Out a Fiduciary Relationship
Once all of the assets of an estate or trust have been distributed or otherwise settled, it is customary that the fiduciary is released from further responsibility. That may be done by signing a release form through the court or an agreement with the beneficiaries of the estate or trust.
Dealing with estate taxation can be complex. Estate taxation attorney John B. Whalen, Jr., provides guidance to his clients when dealing with these complicated issues.
Wayne Pa Probate Lawyers – 7 – Court Accountings – Form
Court Accounts must follow a very specific form. One cannot use any other method. Quicken is not allowed. Quickbooks are not allowed. Excel spread sheets are not allowed. No other method of form of showing every transaction are allowed.