Definitions

Adjusted gross income (AGI). Compute the AGI of an estate or a non-grantor trust by subtracting the following from total income on line 9 of page 1.

1. The administration costs of the estate or trust (the total of lines 12, 14, and 15a to the extent they are costs incurred in the administration of the estate or trust) that wouldn’t have been incurred if the property were not held by the estate or trust.

2. The income distribution deduction (line 18).

3. The amount of the exemption (line 21).

4. The net operating loss deduction (NOLD) claimed on line 15b.

Electing small business trust (ESBT). Compute the AGI of the S portion of an ESBT in the same manner as an individual taxpayer, except that administration costs allocable to the S portion (to the extent they are costs incurred in the administration of the trust that wouldn’t have been incurred if the property were not held by the estate or trust) shall be deducted in arriving at AGI.

Beneficiary. A beneficiary includes an heir, a legatee, or a devisee.

Decedent’s estate. The decedent’s estate is an entity that is formed at the time of an individual’s death and is generally charged with gathering the decedent’s assets, paying the decedent’s debts and expenses, and distributing the remaining assets. Generally, the estate consists of all the property, real or personal, tangible or intangible, wherever situated, that the decedent owned an interest in at death.

Distributable net income (DNI). The income distribution deduction allowable to estates and trusts for amounts paid, credited, or required to be distributed to beneficiaries is limited to DNI. This amount, which is figured on Schedule B, line 7, is also used to determine how much of an amount paid, credited, or required to be distributed to a beneficiary will be includible in their gross income.

Income in respect of a decedent (IRD). When completing Form 1041, you must take into account any items that are IRD.

In general, IRD is income that a decedent was entitled to receive but that was not properly includible in the decedent’s final income tax return under the decedent’s method of accounting.

IRD includes:

• All accrued income of a decedent who reported their income on the cash method of accounting,

• Income accrued solely because of the decedent’s death in the case of a decedent who reported their income on the accrual method of accounting, and

• Income to which the decedent had a contingent claim at the time of their death.

Some examples of IRD for a decedent who kept their books on the cash method are:

• Deferred salary payments that are payable to the decedent’s estate,

• Uncollected interest on U.S. savings bonds,

• Proceeds from the completed sale of farm produce, and

• The portion of a lump-sum distribution to the beneficiary of a decedent’s individual retirement arrangement (IRA) that equals the balance in the IRA at the time of the owner’s death. This includes unrealized appreciation and income accrued to that date, less the aggregate amount of the owner’s nondeductible contributions to the IRA. Such amounts are included in the beneficiary’s gross income in the tax year that the distribution is received.

The IRD has the same character it would have had if the decedent had lived and received such amount.

Deductions and credits in respect of a decedent. The following deductions and credits, when paid by the decedent’s estate, are allowed on Form 1041 even though they were not allowable on the decedent’s final income tax return.

• Business expenses deductible under section 162.

• Interest deductible under section 163.

• Taxes deductible under section 164.

• Percentage depletion allowed under section 611.

• Foreign tax credit. For more information on IRD, see section 691 and Pub. 559, Survivors, Executors, and Administrators.

Income required to be distributed currently. Income required to be distributed currently is income that is required under the terms of the governing instrument and applicable local law to be distributed in the year it is received. The fiduciary must be under a duty to distribute the income currently, even if the actual distribution is not made until after the close of the trust’s tax year. See Regulations section 1.651(a)-2.

Fiduciary. A fiduciary is a trustee of a trust, or an executor, executrix, administrator, administratrix, personal representative, or person in possession of property of a decedent’s estate.

4 Instructions for Form 1041 (2025)

Note: Any reference in these instructions to “you” means the fiduciary of the estate or trust.

Trust. A trust is an arrangement created either by a will or by an inter vivos declaration by which trustees take title to property for the purpose of protecting or conserving it for the beneficiaries under the ordinary rules applied in chancery or probate courts.

Revocable living trust. A revocable living trust is an arrangement created by a written agreement or declaration during the life of an individual and can be changed or ended at any time during the individual’s life. A revocable living trust is generally created to manage and distribute property. Many people use this type of trust instead of (or in addition to) a will.

Because this type of trust is revocable, it is treated as a grantor type trust for tax purposes. See Grantor Type Trusts under Special Reporting Instructions, later, for special filing instructions that apply to grantor trusts.

Tip: Be sure to read Optional Filing Methods for Certain Grantor Type Trusts, later. Generally, most people that have revocable living trusts will be able to use Optional Method 1. This method is the easiest and least burdensome way to meet your obligations.