Question

Distributing taxable interest to other estate heirs

Forum|Forum|2 years ago
November 27, 2023
2 replies
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As executor of my mom's estate I had to pursue a refund from a tax return from the year before she died. There are 4 heirs. The refund finally arrived and includes $3000 interest. I will be getting a 1099 for that interest on my SSN. How do I distribute responsibility for that interest to the other 3 heirs. All 4 of us will be receiving 1/4 of the refund.

M

Mike9241

File a new Form 1099-Int with Form 1096 (this is a transmittal for the 1099) by mailing to the Internal Revenue Service Center for your area. On the 1099, list yourself as the payer and the estate, as the recipient. On Form 1096, list yourself as the nominee filer.

I think to be technically correct the check should be deposited in the estate's bank account and then a check is written to each beneficiary for 1/4 the amount. when filing the 1041 you take a deduction for distributions to the beneficiaries.

if it was a federal tax refund there should be no additional issues

if it was a state income tax refund then there may be an issue as to whether any part is income in respect of a descendant and therefore reported as income on the 1041 and treated as distributed to the beneficiaries.

J

jlr00721Author

I'm pretty certain that the 1099 from the IRS will be to me since the "person claiming the refund" on the 1310 was my name and SSN. Also, the estate's bank account has long been emptied and closed (the existence of the refund was not detected until long after the we though everything was done, and it took the IRS over a year to respond to the 1310 submission). It will be a hassle and expense to 1) open a new estate account and deposit the check, 2) transfer the 1099 to the estate, 3) generate 4 K1s for the four heirs. I'm hoping that there is a proper way to simply create 3 1099s to transfer the 1/4 of the interest to my 3 siblings. Comments?

N

NCPERSON1

@jlr00721 why can't this just be simple? if you are certain the 1099-INT is issued to you personally, why not simply distribute the money to the other 3 heirs as a YOUR personal gift and withhold tax at YOUR marginal tax rate. Then you just report on your tax return and the heirs don't a have to report anything?

might not be technically correct, but the IRS is going to get its tax money. Hopefully heirs don't mind, given the expense it would otherwise cause to to it correctly

Or, as executor, just give each heir 1/4 and eat that tax yourself.....

make it simple without unnearving the heirs...

D

dmertz

Employee

I'll echo Mike9241, concern: Why isn't this going to be shown on a Form 1099-INT under the estate's EIN? A would expect this to be income to the estate, reportable on the estate's Form 1041 and shown as Distributable Net Income passed through to estate beneficiaries on Schedules K-1.