Glossary
Each entry gives the definition you would find in the instructions, then the same idea in the words you would use explaining it to someone across a table. The technical version is what to cite; the plain one is what to remember.
32 terms · tax year 2025
Technical
An election letting a complex trust treat distributions made within the first 65 days of the new year as paid on the last day of the previous year, increasing that year’s distribution deduction.
In plain words
A grace period: money paid out in January or early March can be counted as if it went out last year.
Technical
A distribution a complex trust makes of income it accumulated in an earlier year. Under the throwback rule the amount is carried back to the year it was earned, taxed to the beneficiary at that year’s rates, and computed on Schedule J with an interest charge on the deferred tax.
In plain words
Money the trust sat on and paid out later. The beneficiary is taxed as if the cash had arrived in the earlier year, plus interest for the wait.
Technical
Any person, estate, or entity entitled to receive income or principal from an estate or trust, whether under the governing instrument or by state law. Each beneficiary receives a Schedule K-1 reporting their share of the entity’s items.
In plain words
Anyone entitled to get money out of the trust or estate.
Technical
The deduction for amounts paid from gross income to qualifying charities, subject to the percentage limits and substantiation rules that apply to individuals. A trust may also deduct amounts permanently set aside for charitable purposes under §642(c), without those limits.
In plain words
Gifts to charity written off on the return, much like the charitable deduction on a personal return.
Technical
A trust that is not a simple trust: it may accumulate income, distribute principal, or make charitable gifts. Its exemption is $100, distributions are ordered under the tier system, and accumulated income can later be reached by the throwback rule.
In plain words
A trust allowed to hold money back instead of paying all of it out every year.
Technical
The estate and trust rate schedule, which reaches the 37 percent top rate at roughly $15,650 of taxable income for 2025 — a level an individual does not reach until several hundred thousand dollars. Distributing income to beneficiaries is the main relief valve.
In plain words
Trust tax rates climb to the top rate quickly, so even modest trust income can be taxed at 37 percent.
Technical
The rule that an estate or trust is a conduit rather than a separate layer of tax: income is taxed once, either to the entity or to the beneficiaries, and the entity deducts what it passes through under §651 and §661.
In plain words
The trust is a pipe, not a wall. Income flows through to the people who receive it and is taxed there.
Technical
The principal of a trust, as distinguished from its income: the assets contributed plus any gains allocated to principal under the governing instrument and local law. A distribution of corpus is not deductible by the entity and is generally not income to the beneficiary.
In plain words
Corpus just means the principal — the assets themselves, not the income they throw off. Handing out principal is not a taxable distribution.
Technical
The legal entity that holds a decedent’s assets between death and final distribution. It is a separate taxpayer with its own EIN, is taxed much like a complex trust, and may adopt a fiscal year ending on the last day of any month.
In plain words
The legal box that holds a person’s property while the estate is settled. It files its own return.
Technical
The ceiling on how much income can be shifted to beneficiaries in a year. DNI is taxable income with the distribution deduction and the exemption added back, adjusted for tax-exempt income, net capital gains, and corpus allocations. It limits the entity’s deduction and determines the character of what beneficiaries report.
In plain words
The most income the trust can push out to beneficiaries in a year and still deduct. It also decides how that income is taxed to them.
Technical
A trust that holds S corporation stock and elects the treatment of §641(c), taxing the S portion of its income separately at the highest corporate rate instead of under the compressed trust brackets.
In plain words
A trust holding S corporation stock that can elect to pay a flat corporate rate on that piece of its income.
Technical
A deduction for federal estate tax attributable to income in respect of a decedent that the entity includes in gross income, so the same dollars are not taxed once by the estate tax and again by the income tax (§691(c)).
In plain words
If estate tax was already paid on income the estate later reports, this line removes the overlap.
Technical
Quarterly prepayments of the entity’s own tax, generally required once expected tax for the year reaches $1,000. Paid with Form 1041-ES vouchers or by electronic transfer; the fiduciary is personally liable for the entity’s tax.
In plain words
Pay-as-you-go tax through the year, once the bill is expected to reach $1,000.
Technical
The fixed deduction that stands in for the personal exemption and standard deduction: $600 for an estate, $300 for a simple trust, $100 for a complex trust, and $5,100 for a qualified disability trust. Estates and trusts receive no standard deduction.
In plain words
A small fixed break — $100 to $600, depending on the entity — and no standard deduction at all.
Technical
The person or institution legally responsible for administering an estate or trust: an executor, administrator, personal representative, or trustee. The fiduciary is responsible for filing the return and signs it under penalty of perjury.
In plain words
The person in charge — the executor of an estate or the trustee of a trust. They sign the return.
Technical
Income measured by the governing instrument and state law rather than by the tax code: what the trustee is actually permitted to distribute as income. It drives the tier system and often differs from taxable income.
In plain words
What the trust document, not the tax code, says counts as income available to pay out.
Technical
A tax year other than the calendar year. An estate may adopt a fiscal year ending on the last day of any month; a trust generally must use the calendar year unless it qualifies under §645 or falls under the older trust rules.
In plain words
An estate can pick a tax year that does not end on December 31 — usually one ending soon after the death.
Technical
The form a fiduciary files to allocate the entity’s estimated tax payments to beneficiaries. Once allocated, the entity can no longer claim those payments on its own return.
In plain words
A form that pushes the trust’s prepaid tax out to the people who received the income.
Technical
The automatic extension request. It gives an estate or trust 5½ additional months to file, and it extends the filing date only — not the time to pay.
In plain words
An automatic extension to file. The tax is still due on the original date.
Technical
A trust in which the grantor keeps powers or interests described in §§671–679, so the income is taxed to the grantor. A revocable living trust is the standard example: it files no Form 1041 during the grantor’s life, and its items go on the grantor’s own return.
In plain words
A trust that does not exist as a taxpayer — you report its income on your own return.
Technical
The deduction for income paid, credited, or required to be distributed to beneficiaries, limited to DNI. It is the mechanism that keeps distributed income from being taxed twice.
In plain words
The write-off for money the trust handed to beneficiaries, capped by DNI.
Technical
Income the decedent had a right to but had not received at death: unpaid wages, accrued interest, retirement plan balances, installment sale proceeds. It is taxable to whoever receives it and receives no step-up in basis, which is why the §691(c) deduction exists.
In plain words
Money owed to the deceased but not yet paid. Someone will pay income tax on it, and its basis does not step up.
Technical
A trust for a disabled beneficiary under age 65 that elects the special treatment of §642(b)(2)(C). It gets a $5,100 exemption in place of $100 or $300, and may elect to be taxed like an individual in certain respects.
In plain words
A trust set up for a disabled person that gets a much larger deduction than an ordinary trust.
Technical
The beneficiary entitled to whatever remains of an estate or trust after debts, expenses, taxes, and specific gifts are satisfied — including, often, a share of income that had to be distributed currently.
In plain words
The person who gets what is left after everyone else has been paid.
Technical
The statement each beneficiary receives showing their share of the entity’s income, deductions, and credits, broken out by character — interest, dividends, rents, capital gains — rather than delivered as a single number.
In plain words
The receipt each beneficiary gets, showing their slice of the trust’s income by type.
Technical
An election made on Form 8855 to treat a qualified revocable trust as part of the decedent’s estate for income tax purposes, so both are reported on one Form 1041 during administration and the trust shares the estate’s fiscal year and filing treatment.
In plain words
A choice to report the revocable trust and the estate together on one return while the estate is being wrapped up.
Technical
Where a trust has substantially separate and independent shares for different beneficiaries, each share is treated as its own trust for purposes of DNI, the distribution deduction, and the tier system, so one beneficiary’s share is not taxed by another’s distributions.
In plain words
If the trust holds separate pots for separate people, each pot is figured on its own.
Technical
A trust required to distribute all of its income currently, which may not distribute principal and may not give to charity. It gets a $300 exemption and files Form 1041 for any year it has gross income.
In plain words
A trust that must pay out every dollar of income each year and cannot touch the principal.
Technical
The rule that property acquired from a decedent takes a basis equal to its fair market value at the date of death (§1014), erasing gain that accrued during life. Income in respect of a decedent gets no step-up.
In plain words
Assets reset to their value at death, so gains from before the death are never taxed.
Technical
The Form 1041 for the year in which an estate or trust distributes all of its assets or otherwise ceases to exist. The final-return box is checked, and remaining items such as capital loss carryovers pass through to the beneficiaries.
In plain words
The last return, filed for the year the entity finishes and hands everything out.
Technical
The mechanism that stops a trust from deferring tax by holding income and paying it out years later. An accumulation distribution is taxed to the beneficiary as if received in the year it was earned, plus interest. Schedule J performs the computation.
In plain words
A trust cannot sit on income to dodge high rates. The tax follows the money back to the year it was earned.
Technical
The ordering rule for distributions. First-tier distributions are income required to be distributed currently; they come first and are deductible to the extent of DNI. Second-tier distributions are other amounts properly paid or credited, and they take what DNI is left.
In plain words
The order in which payouts are counted: required income first, extra payouts after.