If you've recently been named executor of an estate, there's a good chance this comes as a surprise: the estate itself may need to file its own income tax return.
Most people assume that once the decedent's final personal return (Form 1040) is filed, the tax side of administering an estate is done. It isn't. If the estate generates more than $600 of gross income after the date of death — from investment accounts, rental income, interest, or the sale of property before assets are distributed — the estate is required to file Form 1041, U.S. Income Tax Return for Estates and Trusts. This is true whether or not the estate is large enough to owe federal estate tax under Form 706, which most estates are not.
Before You Can Even File: What Needs to Be in Place
A tax preparer can't start on Form 1041 in a vacuum. Several administrative pieces typically need to be in place first:
- An EIN for the estate and/or trust. The estate is a separate taxpayer from the decedent and needs its own Employer Identification Number (obtained via Form SS-4), same for an revocable living trust upon original grantor's death.
- Form 56, Notice Concerning Fiduciary Relationship. This formally notifies the IRS that you're acting as the estate's fiduciary and are authorized to act on its behalf.
- Letters Testamentary or Letters of Administration from the probate court, establishing your legal authority as executor, if applicable.
- Copies of the death certificate.
- The decedent's tax returns from the prior two to three years. These help identify recurring income sources, carryover items, and any tax elections already in place.
- A full inventory of estate assets This becomes the foundation for final 1040 and potential estate/trust filings.
Getting Organized Before Filing Season Arrives
The heavy lifting for the executor to prepare for upcoming tax filings happens actually months before. A few things worth starting early:
- Title changes. Real property, brokerage accounts, and other titled assets generally need to be retitled into the estate's name (or a trust's name, where applicable) before they can be properly administered and eventually distributed.
- Basis updates with brokerage firms. Investment accounts don't automatically reflect a stepped-up basis at death — someone has to proactively contact each brokerage firm to update cost-basis records.
- Appraisals for real estate. If real property will be sold or distributed, a professional appraisal as of the date of death is usually necessary to substantiate the stepped-up basis, particularly if the sale happens sometime after death.
- Obtain account statements as of month of death. This gives you a clean starting point for tracking what income belongs to the decedent's final 1040 versus what belongs to the estate's 1041.
Handled early, these items turn tax season into a matter of compiling what's already organized. Handled late, they turn into the reason a return gets extended — or worse, filed with numbers no one is fully confident in.
A Planning Opportunity: The Section 645 Election
If the decedent had a revocable living trust, there's a planning decision worth raising with your tax professional early: whether to make a Section 645 election (filed on Form 8855) to treat the trust as part of the estate for income tax purposes.
Why this matters:
- It combines what would otherwise be two or more separate returns — the trust's and the estate's — into a single Form 1041 during the election period.
- It allows the combined entity to use the estate's fiscal year rather than being locked into a calendar year. That flexibility can meaningfully affect when income and deductions are recognized, which in turn affects the total tax picture across the administration period.
The election is irrevocable once made, and the filing deadline is tied to the due date of the estate's first Form 1041. There is where early involvement of a tax professional gives the executor more options on the table.
Choosing — and Actually Working With — the Right Tax Preparer
Estate and trust returns aren't something to shop for in March. The relationship works best when it starts early, stays active throughout the year, and stays connected to the legal side of the administration — not as a separate, disconnected step.
A few markers of a preparer who's set up to handle this well:
- At the start of engagement, they should be asking about the document list above — EIN status, fiduciary appointment, asset inventory — and raising whether a Section 645 election is worth considering while there's still time to act on it.
- Throughout the year, they should want to stay looped in on developments: title changes as they happen, updated basis confirmations from brokerage firms, appraisal results, and any asset sales.
- Discuss the timing of distribution from the estate/trust to beneficiaries:
- Distributions shift taxable income from the estate/trust to the beneficiary, so timing can lower the overall tax bill.
- The 65-day rule lets a trustee/executor treat early-year distributions as if made in the prior year — a useful planning tool if raised in time.
- For in-kind assets (like property or stock), it's often better tax-wise to distribute the asset itself rather than sell it and distribute cash.
The Bottom Line
the process can be very daunting …… keep things organized and have a tax preparer who have open communication are helpful……
The hard part is everything upstream of it — knowing the estate needs to file at all, getting the right documentation and asset information organized early, and making time-sensitive elections before the window closes. Executors who start this process early — ideally with their estate attorney and tax preparer coordinating from the outset — will end up with a smoother administration and a better tax outcome.
This article is for general educational purposes and does not constitute legal or tax advice. Please consult a qualified tax professional or estate attorney regarding your specific circumstances.