Short Answer

Under North Carolina law, the estate is a separate taxpayer. If the estate has $600 or more of gross income during its tax year—or makes any distributions to beneficiaries—it generally must file a federal fiduciary income tax return (IRS Form 1041). If a federal return is required and the estate has North Carolina‑source income or income for a North Carolina resident, file North Carolina Form D‑407 as well. Time the filing with the estate’s chosen fiscal year; returns are due 3.5 months after that year ends.

Understanding the Problem

You’re administering a North Carolina estate that includes a brokerage account with stocks that may pay dividends. You need to know whether those dividends trigger an estate income tax filing before you submit the final accounting to the Clerk of Superior Court and close the estate. The decision also affects whether you retitle the shares to the estate or sell them.

Apply the Law

In North Carolina probate, the personal representative handles the estate as a separate taxpayer. The estate can choose a fiscal year, and fiduciary income tax returns (federal Form 1041 and, if applicable, North Carolina Form D‑407) are due on the 15th day of the fourth month after the end of that fiscal year. The Clerk of Superior Court will review your accountings and expect income like dividends and interest to be reported and taxes addressed before approving the final account.

Key Requirements

• Filing trigger—income threshold: File Form 1041 if the estate’s gross income (e.g., dividends, interest, gains) is $600 or more during its tax year or if the estate has any taxable income.
• Filing trigger—distributions: If the estate makes distributions to beneficiaries during the tax year, plan to file fiduciary returns and issue Schedules K‑1, even if income is under $600.
• North Carolina filing tie: File NC Form D‑407 if a federal fiduciary return is required and the estate has NC‑source income or income for a North Carolina resident.
• Timing: Returns are due by the 15th day of the fourth month after the estate’s fiscal year ends; extensions are available (federal Form 7004; NC Form D‑410P) but payments may still be due.
• Administration alignment: The Clerk expects accountings to show dividend/interest receipts and tax payments or a reasonable reserve for taxes before approving the final account.

What the Statutes Say

• North Carolina Gen. Stat. § 105-160.2 (Income taxation of estates and trusts) – Explains when NC taxes apply to estate income.
• North Carolina Gen. Stat. § 28A-21-1 (Annual accounts) – Sets annual accounting timelines tied to the estate’s fiscal year.
• North Carolina Gen. Stat. § 28A-21-2 (Final account) – Requires a final account and provides timing for filing and approval before discharge.
• North Carolina Gen. Stat. § 28A-13-2 (Duties of personal representative) – Imposes the duty to settle the estate prudently, which includes handling taxes.

Analysis

Apply the Rule to the Facts: Because the estate holds dividend‑producing stock, you should track post‑death dividends under the estate’s EIN. If the estate’s gross income reaches $600 during its tax year—or if you make any distributions—you should plan to file Form 1041. If a federal return is required and the income is from NC sources or for a NC resident, file NC Form D‑407. Reflect all dividend income and tax payments or reserves in your final account before closing.

Process & Timing

1. Who files: Personal representative. Where: IRS (Form 1041), North Carolina Department of Revenue (Form D‑407), and final accounting with the Clerk of Superior Court. What: Obtain an EIN; track dividends/interest; file IRS Form 1041 with Schedules K‑1 (if distributions); file NC Form D‑407 if applicable; file ACCOUNT (AOC‑E‑506) for annual/final accounting. When: File fiduciary returns by the 15th day of the fourth month after the estate’s chosen fiscal year ends (extensions via Form 7004 and D‑410P).
2. If the estate remains open more than one year, file an annual account by the same 3.5‑month rule after the fiscal year end; county practices vary, so confirm any local preferences with the Clerk’s office.
3. Before closing, pay or reserve for fiduciary income taxes; then file the final account (AOC‑E‑506). Once approved, the Clerk will discharge you from further duties.

Exceptions & Pitfalls

• Any distribution to beneficiaries often means you must file fiduciary returns and issue Schedules K‑1, even if income is under $600.
• A nonresident alien beneficiary can trigger a federal filing requirement even at low income levels.
• Dividends accrued before death may be reported differently than post‑death income; coordinate the decedent’s final Form 1040 and the estate’s Form 1041.
• Failing to obtain an EIN or to retitle the brokerage account can misreport dividends under the decedent’s SSN instead of the estate.
• In year three and later, estates may need federal estimated tax payments; North Carolina generally does not require fiduciary estimated payments.
• The Clerk will look for dividend and interest entries in your accountings; if tax returns are not yet due, keep a documented reserve to avoid delays in final approval.

Talk to a Probate Attorney

If you’re handling an estate with dividend‑paying investments and need to confirm fiduciary tax filing duties before closing, our firm has experienced attorneys who can help you understand your options and timelines. Call us today at (919) 341-7055.

Disclaimer: This article provides general information about North Carolina law based on the single question stated above. It is not legal advice for your specific situation and does not create an attorney-client relationship. Laws, procedures, and local practice can change and may vary by county. If you have a deadline, act promptly and speak with a licensed North Carolina attorney.