What Is Form 1041 for Revocable Living Trusts?
Form 1041 for Revocable Living Trusts Explained
Form 1041 is an income tax return for a decedent's estate or living trust after their death. The form is used to report income, deductions, capital gains, and losses.
Here's what you need to know about when Form 1041 applies to revocable living trusts.
What Is Form 1041?
Form 1041 is officially called the U.S. Income Tax Return for Estates and Trusts. It is similar to a personal Form 1040, but the estate or trust is the filing entity. Any income generated by the estate or trust is reported on this form, as well as deductions like attorney fees or charitable contributions.
The form below is from the 2019 tax year and it is intended as a reference until the IRS releases the 2020 tax year form.
Is a Form 1041 Required for Revocable Trust?
In general, you will not have to file Form 1041 for a revocable living trust so long as you are alive and well and serve as its trustee. The revocable living trust's tax identification number is your own Social Security number because, technically, you still own all the assets the trust contains. Any income earned by a revocable living trust is reported on the personal Form 1040.
All interest, dividends, and other income earned by those assets are reported to the Internal Revenue Service on your tax return. All income earned by your revocable living trust is reported on your personal Form 1040, not on a separate revocable trust tax return.
For most purposes, you are your revocable trust. You have total control of the assets you place into it. You can take them back into your ownership if you choose. You can sell them or give them away. They remain yours.
Revocable vs. Irrevocable Trusts
|Revocable Trust||Irrevocable Trust|
|Generally easier to alter||Generally more set in stone|
|The person who creates the trust continues to own and control assets||Control of assets is turned over|
|Assets can be added and removed at will||Assets placed in irrevocable trust must remain in the trust|
It helps to understand the major distinction between revocable and irrevocable living trusts.
When you form an irrevocable trust, you then step aside; you cannot act as trustee. You no longer have any control over the property you've transferred into the trust. It is no longer yours—it belongs to the trust now, and you can't take it back.
With very few exceptions, you can't undo this type of trust; it's carved in stone. That is why it's treated differently for tax purposes.
When Must a Revocable Trust File a Form 1041?
If you become mentally incapacitated, your successor trustee—the individual you've named to step in and assume control of the trust for you if you're no longer capable of managing your affairs—may have to obtain a separate tax ID number for your trust. In other words, when the revocable trust becomes irrevocable, the trust must receive an Employer Identification Number (EIN), and this is when Form 1041 comes into play.
Obtaining an EIN will generally depend on the exact circumstances of your incapacity and who you've named to serve as your successor trustee. This person may decide it's necessary to secure an EIN for your trust so they can best fulfill their fiduciary duties or limit liability for paying your income tax bills. No rule prohibits them from doing so. If they request an EIN for the trust, they must file a separate income tax return for it using Form 1041. This return would be due on the same date as your personal Form 1040.
If you need an EIN for your revocable living trust, you can obtain one online by using the IRS EIN Assistant. However, it's a good idea to first confer with an estate planning attorney to ensure that doing so is in your best interests. Otherwise, the time and effort spent might complicate your life at tax time.
Can Form 1041 Be E-Filed?
Just as any other personal tax form 1040, Form 1041 can also be e-filed. Use either Form 8453-FE, U.S. Estate or Trust Declaration for an IRS e-File Return, or Form 8879-F, IRS e-file Signature Authorization for Form 1041.
Where to Mail a Form 1041
Use the IRS mailing address that is relevant to your region of the country. These correlate to mailing addresses for Form 1040.
- Form 1041 is used to report the taxable income for a trust or estate after a person's death.
- Revocable estates are still owned by the trustee, so they generally do not require a Form 1041 to be filed.
- If the trustee becomes incapacitated, and a revocable estate becomes an irrevocable estate, then Form 1041 may be required.
Internal Revenue Service. "Abusive Trust Tax Evasion Schemes - Questions and Answers: Basic Trust Law." Accessed Oct. 26, 2020.
Nolo. "Living Trust FAQ - Does My Living Trust Need an EIN?" Accessed Oct. 26, 2020.
The Siegel Law Group, P.A. "Revocable vs. Irrevocable Trust: What’s the Difference?" Accessed Oct. 26, 2020.
William C. Deveneau. "When a Revocable Trust becomes Irrevocable." Accessed Oct. 26, 2020.
Internal Revenue Service. "Employer Identification Number: Understanding Your EIN," Page 8. Accessed Oct. 26, 2020.
Internal Revenue Service. "About Form 1041, U.S. Income Tax Return for Estates and Trusts." Accessed Oct. 26, 2020.
Internal Revenue Service. "2019 Instructions for Form 1041 and Schedules A, B, G, J, and K-1," Page 8. Accessed Oct. 26, 2020.