Probate & Trust Law Section Conference Manual ... - Minnesota CLE

C. Form 706 Deductions. Some post-death costs and expenses can only be deducted on
Form 706 (estate tax) and can not be taken on the Form 1041 (estate income tax):
•Funeral;
•Personal debts (credit card, personal loans, etc.) including accrued but unpaid
interest expense to the date of death;
•Medical expenses (unless deducted on decedent’s final 1040);
•Charitable contributions of principal (any tangible property or gifts from
principal) that are required by the will or trust;
•Federal and state income taxes due on decedent’s final income tax return (Form
1040).
D. Form 1041 Deductions. Some items can only be deducted on the estate’s (or trust’s)
income tax return, Form 1041:
•Charitable contributions of post-death income earned by the estate (trust);
•Investment advisor fees that are a routine part of owning the investment
account(s) and are not administration expenses;
E. Deduction By Beneficiary. Some items can only be deducted by the beneficiaries on
their personal tax returns:
•Non-cash contribution of clothes, furniture, etc. to Goodwill, DAV or other
appropriate organization (unless the will/trust requires the charitable
contribution).
F. Deduction on 1041 or 706. Some costs can be deducted on either the Form 706 or
Form 1041:
•Administration expenses (attorney fees, personal representative or trustee fees,
appraisers, tax preparation fees, etc.);
•Real estate taxes accrued prior to death but paid after death;
•Remember to include a statement with Form 1041 waiving the right to deduct
these costs on Form 706.
For these expenses, choose the tax return that will yield the most tax savings:
•Estates with assets under $1,000,000 (no M706 required): it always best to
deduct on Form 1041.
•Estates with net taxable assets between $1,000,000 and $1,093,785: because of
the 41% M706 tax bracket for estates in this range, it is usually best to deduct
these costs on the Form M706;
•Estates with net taxable assets over $1,093,785 which have net taxable income:
because the marginal M706 bracket is likely to be lower than the estate’s income
tax bracket, it is usually best to deduct these costs on Form 1041;
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