Department of Revenue

Estates and Trusts FAQs

I am looking for:

Administrative Questions

Q. What is a fiduciary?

A. A fiduciary is a person in a position of trust, for example, the trustee of a trust or a personal representative of an estate. A fiduciary includes a guardian, trustee, executor, administrator, receiver, conservator or any person acting in a position of trust or fiduciary capacity for any other person or group of persons.

Q. How can I be sure that the type of trust I want to form is legal?

A. The IRS has information about some of the trusts they consider abusive. The IRS website has additional information about Abusive Trust Tax Evasion Schemes.

Q. What is the residency status of the estate or trust?

Resident Estate

A. An estate is a resident estate if the decedent was domiciled in Montana on the date of his or her death. If the estate is a bankruptcy estate, it is treated as a resident estate if the person for whom the estate was created is a Montana resident.

Resident Trust

A. A trust is a resident trust if the fiduciary is a resident of Montana and/or the trust is administered in Montana.

Nonresident Estate or Trust

A. If the estate or trust is not a resident, it is treated as a nonresident estate or trust.

For a nonresident estate or trust, the Montana tax liability is computed as if the entity was a resident estate or trust, and then multiplied by the ratio of the estate’s or trust’s Montana source income to total income.

Q. When does the estate or trust need a new FEIN?

Estates

A. An estate will be required to obtain a new FEIN if any of the following statements are true:

A trust is created with funds from the estate (not simply a continuation of the estate).
If the estate operates a business after the owner’s death.

An estate will not be required to obtain a new FEIN if the administrator, personal representative, or executor changes his or her name or address.

Trusts

A. A trust will be required to obtain a new FEIN if any of the following statements are true:

One person is the grantor/maker of many trusts.
A trust changes to an estate.
A living or inter vivos trust changes to a testamentary trust.
A living trust terminates by distributing its property to a residual trust.

A trust will not be required to obtain a new FEIN if any of the following statements are true:

The trustee changes.
The grantor or beneficiary changes his/her name or address.

Q. What is the current interest rate on unpaid taxes?

A. The current interest rate is 8%, and it will continue to be in effect through December 31, 2012. Under Montana law, the interest rate for all unpaid individual income taxes depends on the rate set by the Internal Revenue Service (IRS) and may fluctuate each year, but will not be less than 8%.

Interest accrues from the original due date.

Amended Returns

Q. How does a fiduciary amend the Form FID-3?

A. If the fiduciary needs to correct an error on a previously filed Form FID-3, the fiduciary must file an amended return. There is no special form for this purpose.

The fiduciary has five years from the due date of the original tax return to file an amended fiduciary tax return and correct any error.

If the IRS changes or makes corrections to the federal Form 1041 or if the estate or trust amends its federal tax return, the fiduciary will need to amend the Form FID-3 within 90 days of receiving the Internal Revenue Service’s notification of the corrections made to the estate's or trust's federal Form 1041 or within 90 days of filing an amended federal tax return.

Please Note: If the fiduciary files an amended tax return that reflects an increased tax liability, the late payment penalty may be waived. Simply mark the “Amended return” box on the tax form and pay the tax and applicable interest in full. By checking this box and paying all the tax and interest in full, the fiduciary is requesting a waiver of the late payment penalty.

Q. What are some helpful hints for preparing an amended return?

A. The following is a list of helpful hints for preparing an amended Form FID-3:

Use the correct Form FID-3 for the year being amended.
Enter the name of the estate or trust, and the fiduciary’s name, current address, FEIN, and other requested information in the top portion of Form FID-3, page 1.
Mark the “Amended return” box at the top of Form FID-3, page 1.
If the fiduciary is amending to carry back a net operating loss, check the “NOL carryback” box at the top of Form FID-3, page 1.
Complete the entire Form FID-3 and its applicable schedules using the corrected amounts.
Attach the applicable forms and statements explaining all of the adjustments in detail. If the reason for filing the amended return is because of changes the fiduciary or the IRS made to the federal Form 1041, attach a copy of the amended federal return or IRS notice.
Complete and provide a corrected Montana Schedule K-1 (or equivalent) (for tax years after 2008) along with a copy of the amended Form FID-3 to the beneficiaries.

Estimated Tax Payments

Q. Is the estate or trust required to make estimated tax payments?

A. A fiduciary for an estate or trust is required to pay estimated tax payments in 2012 if one of the following conditions applies:

The net income tax liability on fiduciary’s taxable income for the current tax year (as shown on the 2011 Form FID-3, page 2, line 36) was $500 or more.
The fiduciary expects to owe (after subtracting any Montana income tax withheld, mineral royalty tax withheld and tax credits) $500 or more for the 2012 tax year.

Complete Form ESW-FID, the 2012 Montana Fiduciary Estimated Income Tax Worksheet, to calculate if there is a requirement to pay estimated tax for 2012. If you need assistance, please call toll free at (866) 859-2254 (in Helena, 444-6900).

Extension to File

Q. Can the fiduciary get an extension of time to file the estate's or trust's tax return?

A. Yes. To receive a five-month extension, the fiduciary for an estate or trust has to check the extension indicator box on Form FID-3, page 3, and include a copy of the federal extension Form 7004 to the completed Montana estate or trust income tax return. Do not send copies of the federal extension before the fiduciary files the Form FID-3.

In addition, one of the following requirements must be met on or before April 17, 2012:

The estate or trust has paid 90% of the estate’s or trust’s current year tax liability.
The estate or trust has paid 100% of its previous year tax liability through estimated tax payments, withholding tax, or a combination of estimated tax payments and withholding tax.

Even though the estate or trust has applied for an automatic five-month federal extension, this does not guarantee that the estate or trust has a Montana extension, unless it has met one of the requirements listed above on or before April 17, 2012.

Complete the Montana Extension Payment Worksheet, Form EXT-FID-11, to determine whether the estate or trust has a Montana extension payment requirement. If the estate or trust is required to make an extension payment, please use the tax payment voucher found on this worksheet. If you need assistance, call us toll free at (866) 859-2254 (in Helena, 444-6900).

Mark the extension indicator box on Form FID-3, page 3, and attach a copy of the estate's or trust's federal Form 7004 to the completed Montana tax return. Do not send copies of the federal extension prior to filing the tax return.

Important: An extension of time to file is not an extension to pay. If the estate or trust does not pay the amount of tax due by the original due date, it will owe interest and penalties on any balance due.

If the estate or trust does not meet these requirements, your extension will not be accepted and penalties will be assessed.

Filing Deadlines

Q. When is the estate's or trust's income tax return due?

A. The estate's or trust's Montana filing period is the same as its federal filing period. Form FID-3 is due following the close of the tax year for:

calendar year estate or trust - on or before April 18
fiscal year estate or trust - on or before the 18th day of the 4th month following the end of the tax year.

Q. Which taxable year and accounting method does an estate or trust have to use?

A. The 2011 Form FID-3 has to be filed for calendar year 2011 or fiscal year beginning in 2011. If the tax return is for a fiscal year, or a short tax year (less than 12 months), enter the taxable year in the space at the top of Form FID-3, page 1.

The taxable year and accounting method for Montana have to be the same as the taxable year and accounting method used for federal income tax purposes. If the estate or trust changes its federal taxable year or accounting method, it is required to change its Montana taxable year and accounting method accordingly. A copy of the approval from the Internal Revenue Service (IRS) to change an accounting period or method must accompany the first tax return that reflects the change.

Important: Fiscal year filers use the 2010 Form FID-3 if the estate’s or trust’s taxable year began in the 2010 calendar year.

Filing Requirements

Q. Who has to file Form FID-3?

A. The fiduciary of an estate or trust, both resident and nonresident, has to file a Montana Income Tax Return for Estates and Trusts (Form FID-3) if Montana adjusted total income is $2,190 or more.

A tax return is not required if the estate or trust is held for an educational, charitable or religious purpose.

Q. Who has to sign the tax return?

A. Form FID-3 has to be signed and dated by the fiduciary or an officer representing the fiduciary. Form FID-3 is not considered complete unless it is signed. Unsigned tax forms will delay the processing of the return. If the estate or trust has a tax preparer prepare Form FID-3, the name, address and telephone number of the tax preparer has to be included on the tax return.

Q. What forms and schedules have to be filed by the estate or trust?

A. When the fiduciary files Form FID-3, include a complete copy of the federal Form 1041, U.S. Income Tax Return for Estates and Trusts, with all federal Schedule(s) K-1, all statements and all documents

Failure to include a complete copy of the federal Form 1041 will subject the return to treatment as a delinquent return. In addition, for the Montana FID-3 to be considered a complete return, a properly completed Montana Schedule K-1 must be included for each person or tax entity that was a beneficiary at any time during the taxable year.

Q. Where does the estate or trust file the tax return?

A. Please mail Form FID-3 and all required documents to:

Montana Department of Revenue
PO Box 8021
Helena MT 59604-8021

Q. Does a grantor trust have to file Form FID-3?

A. Yes. Attach a statement to Form FID-3 showing the grantor’s items of income, credits and deductions. Although the grantor trust is not recognized as a separate taxable entity for income tax purposes, the grantor must keep the IRS and State of Montana informed of the income earned. If only a portion of the income earned by the trust is to be reported on the grantor’s federal income tax return, then both a federal Form 1041 and Montana Form FID-3 will be required annually to report that portion of the income which is taxable to the trust.

Q. What are the filing requirements for beneficiaries?

A. The beneficiaries of a trust or an estate must file a Montana income tax return (Form 2) to report their portion of Montana source income. The estate or trust reports to each beneficiary their share of Montana source income on a Montana Schedule K-1.

Keeping Records

Q. What records should the estate or trust keep for Montana tax purposes, and how long should they keep them?

A. The estate or trust must keep accurate records to verify items of income, deductions and credits claimed on its income tax return. Maintain records in a manner that will allow the department to determine if the return was filed correctly.

The estate or trust should keep copies of its tax returns as part of its tax records. Following is a listing of some of the items that should be maintained:

Income: Keep sales journals, sales invoices, cash register tapes, financial statements, bank statements, contracts, and other documents to verify income reported on returns.
Deductions : Keep purchase journals, purchase invoices, check registers, cancelled checks, bank statements, and other documents to verify expenses claimed on returns.
Allocations, Distributions and Credits: Keep all supporting workpapers and other documents used in computing the allocations, distributions and credits claimed on returns.

Generally, keep tax records at least until the statute of limitations expires for the tax return on which any of those items of income, deductions, allocations or credits appear. Usually this is five years from the due date of the return or the date filed, whichever is later.

If income is underreported on the tax return by 25% or more, the statute of limitations is seven years from the due date of the return or the date filed, whichever is later. If the return is false or fraudulent, or if no return is filed, there is no statute of limitations and departmental action can generally be brought at any time.

Records relating to property as long as they are needed to figure the basis of the original or replacement property and for five years after a return is filed on which is reported any sale or other disposition of the property.

Mailing Address for Returns and/or Payments

Please mail Form FID-3 and all required documents to:

Montana Department of Revenue
PO Box 8021
Helena, MT 59604-8021

Montana Schedule K-1

An estate or trust is required to provide information that the beneficiary will need to complete their Montana tax return on Montana Schedule K-1(Form FID-3), Beneficiary’s Share of Income (Loss), Deductions, Credits, etc.

Beginning with the 2010 tax year, the Montana Schedule K-1 is required for all beneficiaries. The fiduciary has to prepare a Montana Schedule K-1 for each beneficiary during the estate’s or trust’s taxable year.

Q. Does Montana Schedule K-1 have to be issued if there are no nonresident individual beneficiaries and no modifications or credits passed through to the beneficiaries?

A. Beginning with the 2010 tax year, the Montana Schedule K-1 is required for all beneficiaries. The trust or estate has to prepare a Montana Schedule K-1 for each beneficiary who received a distribution at any time during the tax year.

The trust or estate will report all applicable information for each beneficiary on a separate Montana Schedule K-1.

Montana Source Income

Montana source income is the separately and non-separately stated income, gain, loss, deduction or credit, or items of income, gain, loss, deduction or credit derived from a trade, business, occupation or profession carried on in Montana or derived from the sale or other transfer, or the rental, lease, or other commercial exploitation of property located in Montana.

Q. How does the estate or trust determine if income is sourced to Montana?

A. If the trust or estate is a resident entity, all income received, regardless of source, is Montana source income.

If the trust or estate is a nonresident entity, items of income are sourced to Montana as follows:

Interest and dividend income received by a nonresident trust or estate is not Montana source income.
- Exception: Installment sale interest income. Interest income from the sale, exchange or other disposition of property located in Montana at the time of the sale is Montana source income.
Rents and royalties from real property are Montana source income if the property is located in Montana.
Rents and royalties from tangible personal property are sourced to Montana to the extent the property is used in Montana. The extent of use of tangible personal property in a state is determined by multiplying the rents and royalties derived from the property by a fraction, in which the numerator is the number of days of physical location of the property in the state during the rental and royalty period in the tax year and the denominator is the number of days of physical location of the property everywhere during all rental or royalty periods in the tax year.
Patent and copyright royalties are sourced to Montana to the extent the patent or copyright is used in Montana. A patent is used in Montana to the extent that it is employed in production, fabrication, manufacturing, or other processing in Montana or to the extent that a patented product is produced in Montana. A copyright is used in Montana to the extent that printing or other publication originates in Montana.
Gains and losses from the sale, exchange or other disposition of real or tangible personal property are in Montana if the property is located in Montana at the time of the sale, exchange or other disposition. Gains or losses from the sale, exchange or other disposition of intangible personal property are not sourced to Montana.
Montana source income from subchapter S corporations, partnerships and other fiduciaries paid to the trust or estate is sourced to Montana as if the trust or estate received it directly. The Montana Schedule K-1 provided by the subchapter S corporation, partnership or other fiduciary identifies the Montana source income to be reported by the beneficiary.
Other income not included above that is derived from Montana sources is sourced to Montana. This includes compensation for services performed in Montana (for example, wages received by an estate for services performed in Montana by the decedent).

Net Operating Loss

Q. Is the net operating loss deduction on the Federal Form 1041 the same deduction on the Montana FID-3?

A. The federal net operating loss reported on federal Form 1041, line 15a, and the Montana net operating loss reported on Form FID-3, line 15a, are the same amount.

Penalties and Interest

Q. Is the estate or trust subject to interest or penalties if it doesn't file the Montana estate or trust tax return by the due date?

A. The following penalties and interest apply to estates and trusts:

Interest on Underpayment of Estimated Taxes. The estate or trust is required to pay its income tax liability throughout the year if it expects to owe an income tax liability of at least $500 after subtracting tax credits and withholding payments. Payments can be made through withholding, installment payments of estimated taxes, or a combination of both.

If the estate or trust did not pay in advance at least 90% of the estate’s or trust’s current income tax liability (after applying its credits) or 100% of the previous year’s income tax liability (after applying its credits), it may have to pay interest on the underpayment of estimated tax.

To calculate the interest, please complete Form EST-I, 2011 Underpayment of Estimated Tax by Individuals and Fiduciaries. For assistance, call toll free at (866) 859-2254 (in Helena, 444-6900).
Late File Penalty. If the estate or trust files its tax return after April 17, 2012—or September 17, 2012 with a valid extension—it will need to pay a late file penalty if there is tax due on line 44. The penalty is equal to the lesser of $50 or the amount of tax the estate or trust owes. The estate or trust does not have to pay a late file penalty if it is filing the tax return late and has a refund.
Late Payment Penalty. If the estate or trust has not paid all of its tax liability by the due date of the fiduciary return, it will need to pay a late payment penalty. The late payment penalty is 1.2% per month or part of a calendar month on the unpaid amount from the original due date until it is paid. For example, if the estate or trust does not pay its tax due until May 10th, the late payment penalty will be 2.4% (two parts of a month x 1.2%) of the unpaid tax. Please remember that an extension to file the return is not an extension to pay the income tax. In no instance will the late payment penalty exceed 12% (10 months X 1.2%) of the unpaid tax.
Interest. If the estate or trust has not paid 100% of the income tax liability by the original due date (April 17th for a calendar year tax return), interest is due at a rate of 8% per year, computed daily on the unpaid balance. To calculate the interest, multiply the unpaid balance by 0.02192% (0.0002192) times the number of days after the original due date the tax is paid.

Please note: A valid extension of time to file a tax return does not extend the due date to pay an income tax liability after April 17, 2012. Interest accrues from the original due date.

Q. Will the estate or trust be penalized if it is due a refund, but the income tax return is filed late?

A. There is no late filing penalty for the tax return if there was an overpayment of tax and the estate or trust is receiving a refund.

Power of Attorney

Q. If the department has any questions concerning the return, can the fiduciary authorize the department to talk to the tax preparer or other representative about the tax return?

A. If, on the third page of the Form FID-3, the box ”Yes” after the question, “May the DOR discuss this tax return with your tax preparer?” is marked, then we can discuss any concerns that we might have with the estate's or trust's 2011 tax return—a missing schedule, for example—with the tax preparer. If the box is not marked, then we cannot discuss the return with anyone but the fiduciary who signed the return or someone to whom the estate or trust authorized on a Power of Attorney, Authorization to Disclose Tax Information (Form POA).

If “Yes” is marked on the return, the estate or trust is authorizing us to call the tax preparer to answer any questions that arise while we are processing the 2011 tax return.

By marking the box the estate or trust is also authorizing us to:

Request that the tax preparer give us any information that is missing from the return.
Respond to the tax preparer’s call to us for information about the processing of the return or the status of the estate's or trust's refund or payment(s).
Discuss certain notices from us about math errors, offsets, and return preparation. Note: The department will only send notices directly to the estate or trust, not to the tax preparer.

The estate or trust is not authorizing the tax preparer to receive any refund check, bind the estate or trust to anything (including any additional tax liability), receive any information about any other tax year or tax matter, or otherwise represent the estate or trust before the department.

Please be aware that this authorization cannot be revoked. The authorization will, however, automatically end no later than the due date, without regard to extensions, for filing next year’s (2012) tax return. For most estates and trusts, this is April 15, 2013.

If the estate or trust wants to expand or change the tax preparer’s authorization (for example, to verify any estimated payments it'll be making in the future), use Form POA. If tax matters and tax periods are not specified, the form will not be in effect.

Q. How does an estate or trust authorize a representative to work with the department during an audit?

A. The Power of Attorney (Form POA), Authorization to Disclose Tax Information, is used by taxpayers to either change a Power of Attorney status or provide written authorization to a representative. A disclosure authorized by this form may take place by letter, facsimile, e-mail or personal visit.

If tax matters and tax periods are not specified, the form will not be in effect.

Tax Forms

Q. What forms and schedules have to be filed by an estate or trust?

Tax Rates

2011 Montana Fiduciary Income Tax Table
If your taxable income is:
More than	But not more than	Then your tax is	Less:
$0	$2,700	1% of your taxable income	$0
$2,700	$4,700	2% of your taxable income	($27)
$4,700	$7,200	3% of your taxable income	($74)
$7,200	$9,700	4% of your taxable income	($146)
$9,700	$12,500	5% of your taxable income	($243)
$12,500	$16,000	6% of your taxable income	($368)
$16,000 or more		6.9% of your taxable income	($512)
For example: Taxable Income $6,800 X 3%(0.030) = $204. $204 minus $74 = $130 Tax

For nonresident estates and trusts, use Form FID-3, Schedule F to complete the calculation of the tax liability.

Last updated 1/5/2012 10:57:21 AM

Montana Department of Revenue