Kathryn A. Murphy

As the fiduciary of an estate or trust, you have many duties, beginning immediately upon the decedent’s (deceased person’s) passing. You’re also guaranteed to become intimately familiar with a host of tax forms you may not have known existed.Tax forms to know as the fiduciary of an estate or trustWhen you’re administering an estate or trust, you may have to prepare a seemingly endless array of tax returns.

When you’re asked to administer a trust or estate for a relative or friend (especially if that person didn’t have a will), this important responsibility can feel overwhelming during an already difficult time. Here are ten pitfalls that often trip up unwary administrators — and that you should avoid:Don't fail to terminate an existing real estate purchase and sale agreement.

No matter which tax return you’re preparing (the decedent’s personal return or one for an estate or trust), you have to calculate the tax after you figure out the income and the deductions. If you’re working on the decedent’s return, you arrive at your tax liability exactly the same way as you would your own. If you’re finishing up a Form 1041 and need to figure out Schedule G (on the back), read on.

Sometimes, even when the trust or estate doesn’t have to file Form 1041, you still receive tax information from other sources. When you won’t be preparing a 1041 (perhaps the trust or estate has terminated), there won’t be a Schedule K-1 either. Instead, pass along any tax information you receive via a Form 1099 for income earned by property formerly owned by the trust or estate to the property’s new owners by issuing them a nominee Form 1099.

You may have realized that many of the deductions available on the Form 706 look familiar, and you may be wondering if you can have it both ways, deducting them the first time on the 706 and then again on the 1041. Well, you can’t. In fact, the IRS refers to this practice as double-dipping and seriously frowns upon it.

After you put the sum of lines 1a through 1c on Schedule G, line d, you’re ready to see whether you can reduce your tax with tax credits. Tax credits are dollar-for-dollar amounts that you subtract from your tax liability; they’re better than deductions. Estates and trusts aren’t eligible for most tax credits that individuals can take, and no credit on Form 1041 can reduce the tax liability below zero.

Organization is the key, and no more so than when you’re a trustee. The grantor has relied on you to handle the trust’s assets competently. When you’re organized, you know where the trust’s important documents and records are, which helps you to properly and efficiently administer the trust. Organizational lapses can mean extra time spent searching for a crucial piece of correspondence or, more important, failure to make a required distribution or file and pay the trust’s taxes.

We’d love to tell you that, when you’ve completed the estate’s final tax returns, the final accounts, crossed your t’s and dotted your i’s, that you’re done, finished, complete. We’d be lying. No matter how careful you are, matters beyond your control may mean small amounts of additional money, or assets you never knew about, whether belonging to principal or income, will eventually find their way into your hands.