Quick Notes

One-liners — the rule each study question and exam question was really testing, one sentence each, brought current to 2026. The tag is the question and the answer: marked means it was read from the circled letter on my printout of the 1041 final; derived means the mark did not survive scanning (or the second course’s exam was never keyed) and the answer was worked from the text. Where a 2019 figure has moved, the 2026 figure follows.

Parties, entity types, accounting income

• The trustor (grantor) is the person who transfers property to the trust; he may define income and principal in the document differently from state law, need not keep a power to amend, and a “living trust” is not necessarily revocable. [1041 Q1, A; marked]
• Accounting income is set by the legislature of the state whose law governs the trust, as modified by the trust document — not by FASB, the AICPA or the IRS. [1041 Q2, D; marked]
• For a simple trust, accounting income is the amount that must be distributed; it usually differs sharply from taxable income; FASB has nothing to do with it. [1041 Q24, C is the false statement; marked]
• A trust that distributes the balance of its principal in its final year is complex for that year; receiving tax-exempt income, being newly funded, or being required to distribute income does not make a trust complex. [1041 Q3, B; marked]
• Any distribution from corpus makes the trust complex for the year; status is retested every year; simple trusts get no charitable deduction; a terminating trust is complex. [1041 Q4, C; marked]
• Net receipts from timber are income to the extent the cutting does not exceed growth during a period with a mandatory income beneficiary; excess cutting and sales of standing timber are principal. [1041 Q26, C; marked]
• Regular trustee, investment-advisory and custodial fees are split half to income and half to principal; property taxes and ordinary repairs are charged to income; estate taxes to principal. [1041 Q27, D; marked]
• A required deferred-compensation or IRA payment with no part characterized as interest or dividends is 10% income and 90% principal; a full payout or a voluntary withdrawal is 100% principal; a phantom-stock dividend is 100% income. [1041 SQ 12, D]
• The 2000 Uniform Principal and Income Act with the 2008 amendments was adopted by California; the state-by-state list in the course is a 2019 snapshot and several states have since moved to the 2018 Uniform Fiduciary Income and Principal Act. [1041 Q25, A; marked; Colorado’s current act]

Filing, due dates, extensions

• A decedent’s estate files Form 1041 if its gross income is $600 or more or it has a nonresident-alien beneficiary; a trust files if it has any taxable income or gross income over $600. [1041 Q5, D; marked]
• A grantor trust on the grantor-TIN method — the grantor’s SSN on a W-9 to every payer — files no Form 1041 at all. [1041 Q6, D; marked]
• A calendar-year trust or estate that files Form 7004 has until September 30: a 5½-month extension. [1041 Q7, C; derived]
• The Form 7004 extension is automatic if timely; it does not require full payment to be valid, it is 5½ months (not five), and it does not extend the beneficiaries’ returns. [1041 Q44, A; marked]
• A calendar-year simple trust that extends its 2019 return has until September 30, 2020. [1041 SQ 24, B]
• George dies in November; his estate’s first tax year may end on the last day of any month through the following October 31 — any period of 12 months or less ending at a month end. [1041 SQ 4, C]
• The §645 election runs from death to the earlier of full distribution or the applicable date: two years after death if no 706 is required, otherwise six months after final determination of the estate tax if later. [TED course 1A]
• Schedule D is the one schedule that comes in a Form 1041 version; Schedules C, E and F and Form 4797 are the Form 1040 versions. [1041 Q12, B; marked]

Income

• The decedent’s 1099 amounts are listed in full on the final 1040 with a “Form 1041” nominee subtraction for the post-death portion, which the estate reports; a trust with municipal interest must allocate indirect administrative expenses between taxable and tax-exempt income; brokers’ consolidated 1099s are due February 15. [1041 Q8, C; derived — the course’s chapter 2 text contradicts its own answer on the allocation point; the answer is right]
• A trust or estate pays no self-employment tax on a business it operates; the passive activity rules apply; business expenses are above the line; passive business income is net investment income. [1041 Q13, A; marked]
• A trust shows material participation by the trustees’ own hours under the seven Reg. §1.469-5T tests; the decedent’s participation before death does not count for the estate or trust. [1041 Q14, A; marked]
• Frank Aragona Trust (2014): a trust can be a real estate professional, and trustees’ work as employees of the trust’s business counts toward material participation. [1041 SQ 5, D]
• Section 179 is simply unavailable to a trust or estate — not deductible by the entity, not allocable to beneficiaries, not limited to business income. [1041 Q15, D; marked]
• No one — estate, trust or beneficiary — may claim bonus depreciation on property acquired from a decedent, because its basis is set by §1014. [1041 Q16, D; derived]
• An estate’s depreciation is apportioned between the estate and the beneficiaries on the basis of the estate income allocable to each, regardless of the will, with no reserve. [1041 Q17, A; marked]
• A trust’s depreciation goes first to the trust up to the reserve the document or state law allows; only the remainder is apportioned by accounting income. [1041 Q10, C; derived]
• Inherited property is always long-term, even if bought the day before death and sold the day after (§1223(9)). [1041 Example 2.5]
• Capital gains of a trust or estate default to principal and are taxed to the fiduciary; a net capital loss offsets only $3,000 of ordinary income a year and cannot pass to beneficiaries until the final year. [1041 course 2D]
• Where state law vests title to the decedent’s real estate directly in the heirs at death, the income from it is taxed to the heirs, not the estate. [TED Q1, C; derived]
• A fiduciary recognizes no gain on distributing property in kind to a residuary beneficiary, but recognizes gain as if sold when it uses property to satisfy a fixed-dollar bequest: land worth $100,000 with a $98,000 basis paid against a $100,000 bequest is a $2,000 gain. [TED Q5, B; derived]
• Same rule: land worth $100,000 with a $96,000 basis used to satisfy a $100,000 bequest produces a $4,000 gain. [TED SQ 1, B]
• Compensation paid to the estate after a cash-basis decedent’s death — last-illness wages, accrued leave, deferred compensation — is income in respect of a decedent on Form 1041 line 8, with no step-up. [1041 course 2G]

S corporation stock in trusts

• A bypass trust for the decedent’s spouse is not automatically an eligible S shareholder; a 100%-owned grantor trust, a qualified voting trust, and a trust created to exercise voting power are. [1041 Q9, A; derived]
• A trust that receives S stock under a will may hold it two years without terminating the election; the trustee (not the beneficiaries) makes an ESBT election; a §645 trust is eligible during the election period; a QSST election binds successor income beneficiaries. [1041 Q11, C; marked]
• A QSST has one income beneficiary during her life, corpus only to her, all income distributed currently, and the beneficiary — not the trustee — makes the election within 2 months and 15 days. [1041 SQ 6, B is the false statement]

Deductions

• Qualified dividends are not investment income for the investment-interest limit unless the trust elects under §163(d)(4)(B) to forgo the lower rate; corporate bond interest and non-materially-participating working-interest income are investment income without an election. [1041 Q18, A; marked]
• Mortgage interest on the decedent’s residence is deductible by the estate only if a beneficiary with a present or residuary interest lives there, or the home is rented; that the decedent lived there is irrelevant. [1041 SQ 7, C]
• A personal property tax is deductible only if ad valorem; fiduciaries deduct real and personal property taxes alike; property taxes accrued at death and paid afterward are §691(b) deductions allowed on both the 706 and the 1041 with no waiver. [1041 Q19, C; marked]
• An estate deducts the state income tax due on the decedent’s final return on both the 706 and the 1041; GST tax on income distributions is deductible; foreign taxes may be credited; state inheritance tax is never an income tax deduction. [1041 SQ 8, D]
• A corporate trustee’s bundled fee is split between deductible fiduciary costs and nondeductible investment advice by any reasonable method, including the share of the trustee’s time spent on investments. [1041 Q20, C; marked]
• Investment advisory fees of the kind individuals pay are not deductible by a trust or estate; preparing the decedent’s final 1040, appraisals for distributions, and fiduciary bond premiums are fully deductible under §67(e). The nondeductibility is now permanent. [1041 Q23, C; marked; updated]
• Trusts and estates have no percentage-of-income limit on charitable deductions; the gift must be authorized by the instrument, must come from gross income, and may be elected into the prior year. [1041 Q21, A is the false statement; derived]
• A charitable deduction requires authorization in the instrument; there is no 60% limit; the prior-year election exists; an estate’s set-aside is deductible only if the chance of non-payment is so remote as to be negligible. [1041 SQ 9, B]
• An estate that pays $10,000 to charity under its instrument deducts $10,000 — no percentage limit, no floor. [TED Q2, D; derived]
• An estate that pays $20,000 to charity and permanently sets aside $80,000 more deducts $100,000. [TED Q6, D; derived]
• Course version: $50,000 paid plus $75,000 set aside by an estate is a $125,000 deduction. [TED SQ 2, C]
• An estate’s administration costs go on the 1041 or the 706, not both, by the §642(g) election and waiver. [TED SQ 4, B]
• A fiduciary’s NOL cannot offset more than 80% of taxable income, carries forward indefinitely with no carryback, can arise from a casualty loss, and where a carryback is allowed goes on Form 1045 or an amended 1041. [1041 Q22, A; marked]
• The standard deduction of a trust or estate is zero (§63(c)(6)(D)). [TED Q3, A; derived]
• The exemption is $600 for an estate, $300 for a trust required to distribute all income currently, $100 for any other trust. [1041 Q37, C; TED SQ 3, C; marked]
• If annuity payments stop because the annuitant died, the unrecovered investment is an itemized deduction on the final return not subject to any floor (§72(b)(3), §67(b)(10)). [TED SQ 6, A]

DNI and distributions

• DNI starts with taxable income and makes the §643(a) adjustments; it is computed for every trust and estate, not only complex ones; it is not driven by the state-law allocation (except for capital gains); it is the maximum, not the minimum, distribution deduction. [1041 Q28, C; derived]
• DNI includes the exemption added back, includes 100% of a taxable IRA distribution even if 90% is principal for accounting, allows no §691(c) deduction, and leaves capital losses out rather than adding them back. [1041 SQ 13, C is the one true statement]
• A complex trust’s distribution deduction is limited to DNI (not the greater of DNI or distributions); DNI already includes net tax-exempt interest; if DNI is short it is absorbed by Tier I first. [1041 Q29, C; marked]
• A simple trust deducts required income whether or not paid by year end; DNI less net tax-exempt income is the ceiling; estates and complex trusts use the same §661 rules; DNI attaches to Tier I first. [1041 SQ 14, D is the false statement]
• Distributions include income required to be distributed, amounts properly credited, and residuary distributions, but not a specific bequest ascertainable at inception or death and paid in three or fewer installments. [1041 Q30, A; derived]
• A fixed payment the trustee may make from income or principal can be a specific bequest; an annuity, an amount payable only from income, and a lump sum accepted in place of a required ten-year annuity all carry out DNI. [1041 SQ 15, C]
• All the shares of a named corporation under a specific provision of the will is a specific bequest; amounts payable only from income, lump sums in lieu of annuities, and annuities are not. [1041 SQ 16, D]
• The 65-day election is made by the fiduciary alone, on the return; no beneficiary consent is needed. [1041 Q31, D; marked]
• The 65-day amount is limited to what was actually paid in the 65 days and to the greater of accounting income or DNI not already distributed; it cannot exceed DNI; it should rarely be zero, because trust brackets are worse than individuals’. [1041 Q32, B; marked]
• Brianna’s trust — $3,000 dividends, $2,000 interest, $1,000 capital gain, $25,000 taxable IRA distributions, no expenses — has DNI of $30,000: the gain is out, the IRA income is in. [1041 SQ 17, C]
• When that trust distributes $3,000, the K-1 carries 10% of each DNI class: $300 of dividends, $200 of interest, $2,500 of IRA income — never the capital gain. [1041 SQ 21, C]
• Annualization periods for a fiduciary’s estimated tax end one month before each installment — roughly 45 days to compute the payment. [TED Q7, B; derived]

Termination year

• Excess deductions on termination, capital loss carryovers and NOL carryovers pass to the beneficiaries on the final K-1; a charitable carryover does not, and a charitable deduction cannot create excess deductions. [1041 Q33, D; marked]
• The Smith Trust ends with a $15,000 capital loss carryover; Bonnie has $5,000 of gains and $50,000 of ordinary income; she uses $5,000 against gains and $3,000 against ordinary income and carries $7,000 forward. [1041 Q34, C; marked]

Tax computation

• A trust with $15,000 of ordinary taxable income owed $3,908 in 2019 ($3,075.50 plus 37% of the $2,250 over $12,750); on 2026 brackets the same income is $3,501. [1041 Q35, C; marked; updated]
• The 37% rate began at $12,750 of trust taxable income in 2019 — $16,000 in 2026. [1041 SQ 18, D; updated]
• A fiduciary’s AMT is the excess of tentative minimum tax over regular tax, computed on Schedule I of Form 1041 after an AMT-basis distribution deduction, at 26% and 28% — not a flat 28%. [1041 Q36, A; marked]
• Charitable contributions are not an AMT adjustment or preference for a trust; the regular-tax NOL, private-activity bond interest, and taxable refunds are. [1041 SQ 19, A]

Net investment income tax

• IRA and individual retirement annuity distributions are excluded from net investment income; interest on U.S. government bonds, gains on corporate stock, and non-business rents are included. [1041 Q38, C; marked]
• Distributions from §401(a) plans, §457(b) governmental plans and Roth IRAs are excluded from net investment income; nonqualified deferred compensation is not. [1041 SQ 20, C]
• A bankruptcy estate is treated as married filing separately for the NIIT, with a $125,000 threshold, instead of the trust threshold at the top bracket. [1041 Q39, B; marked]
• A decedent’s estate is subject to the NIIT; purely charitable trusts, qualified plan trusts and 529 plan trusts are exempt. [1041 Q40, B; marked]
• The NIIT hits a fiduciary on the lesser of undistributed net investment income or AGI over the dollar amount where the 37% bracket begins — $12,750 in 2019, $16,000 in 2026. [1041 course 7C; updated]

Estimated tax and penalties

• An estate owes no estimated tax until its first tax year ending two or more years after death: death October 23, 2019 with a September year → estimates begin with the year ended September 30, 2022. [1041 Q41, C; marked]
• A trust must pay estimates if it owes $1,000 or more after withholding, in four installments; 90% current or 100%/110% prior-year avoids the penalty — but the prior-year safe harbor requires a full 12-month prior year and is unavailable, not annualized, if the prior year was short. [1041 SQ 22, B is the false statement]
• The minimum late-filing penalty for a 2019 Form 1041 was the lesser of $210 or the unpaid tax; indexed, about $525 for returns due in 2026. [1041 Q42, D; marked; updated; ]
• A fraudulent failure to file is penalized at 15% per month up to 75%. [1041 Q43, C; marked]
• The substantial-understatement penalty — 20% of the understatement over the greater of 10% of the correct tax or $5,000 — does not apply with reasonable cause and good faith; the IRS need not prove negligence; “reasonable possibility of success” is not the standard. [1041 SQ 23, C]

Statutes and assessment

• A trust that files and pays on April 15, 2020 must file any refund claim by April 15, 2023 — three years from filing, or two from payment if later. [1041 Q45, C; marked]
• A request for prompt assessment (Form 4810, §6501(d)) requires the IRS to assess within 18 months of the request, and only for returns already filed. [1041 Q46, C; marked]
• A 2019 trust return filed March 1, 2020 is deemed filed April 15, 2020; a late return starts the three years on the day filed; a basis overstatement counts as an omission of income for the six-year statute. [1041 SQ 25, A]

Grantor trusts

• A grantor-trust owner need not have any right to withdraw assets; the IDGT grantor is taxed on income he cannot reach; a 100% grantor trust is treated like a disregarded entity; the items are reported as if the grantor earned or paid them; the assets may or may not be in his estate. [1041 Q49, C is the false statement; marked]
• Someone other than the transferor can be taxed as owner (§678); the rules were written to stop income-splitting through controlled trusts; a transfer to a grantor trust can still be a completed gift; grantor trust status is usually deliberate. [1041 SQ 26, B is the false statement]
• The possibility that the grantor might get property back as a surviving spouse under an elective share is not a §677 power; a nonadverse party’s power to distribute to the spouse, the spouse’s power to accumulate for the grantor, and the power to pay premiums on a second-to-die policy all are. [1041 Q47, B; marked]
• Under §673 the grantor is the owner if the reversionary interest was worth more than 5% of the portion at inception. [1041 Q48, A; TED SQ 5; marked]
• Under §676 a trust is wholly the grantor’s if a nonadverse party — a commission-earning broker, an appointable trust protector who can terminate and take corpus, a later-acquired spouse with power to appoint beneficiaries — can revest title in the grantor; merely serving as trustee does not. [1041 SQ 27, B]
• A grantor who keeps a unilateral power to change beneficiaries owns the trust under §674 whether or not she exercises it and even if she must act in the beneficiaries’ interest. [1041 SQ 28, D]
• A beneficiary with a five-and-five power over a $500,000 trust who lets it lapse is treated as owner of $25,000 of trust assets and their income — not as having $25,000 of income — and the lapse is not a taxable gift. [1041 SQ 29, D]
• An IDGT lets corpus grow untaxed, shifts wealth without a gift, and shrinks the grantor’s estate by the tax paid; the grantor’s bearing tax on assets she no longer controls is the cost, not a benefit. [1041 SQ 30, D]
• An independent trustee’s power to distribute income among beneficiaries (§674(c)) does not make the grantor the owner; a power to amend, a power to revoke, or the grantor’s power to borrow from the trust does. [TED Q4, A; derived]

§121 and trusts

• The home-sale exclusion is available through a grantor trust wholly owned by one grantor, who is treated as owning and using the home; it is not available to a credit shelter trust even if the surviving spouse lives in the house, nor to any other trust; the two-year periods do not restart on transfer to a grantor trust. [1041 Q50, A; marked]

Depreciation apportionment

• An estate’s rental: $20,000 depreciation, $40,000 accounting income, $10,000 distributed → $5,000 of depreciation to the beneficiary on the K-1, $15,000 to the estate. [1041 Example 2.2]
• Same property in a trust with a $4,000 reserve: the reserve goes to the trust first, then $16,000 × 10/40 = $4,000 to the beneficiary; $16,000 in all to the trust. [1041 Example 2.3]

Private reference, not client advice. Notes taken from two continuing-education courses: Form 1041: A Practical Guide (Hadges & Zollars, Thomson Reuters Checkpoint Learning, 10 hours, written on 2019 law) and Taxation of Trusts, Estates, and Decedents (DeScherer & Rodda, CeriFi, 2025 printing on 2024 law). Figures and rules brought current to 2026 in October 2026 (P.L. 119-21, Rev. Proc. 2025-32, T.D. 9918). Items tagged check are to be confirmed against primary sources before they are relied on.