loss carryforward in estate return

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My mom lived in Oregon, passed away in 2006 and held her assets in a living trust ($1.2M). My mom?s tax preparer (EA) helped me file an individual return for 2006. The living trust filed a 2007 return. The fiduciary and attorney fees created a loss (line 22) for about $30K. I asked the tax preparer to make the 2008 return as the final return since I have distributed all the assets and want to terminate the trust. The tax preparer told me the losses from the previous year can?t be carried forward or pass on to the beneficiaries. His logic or explanation was there were no federal inheritance taxes to pay so the beneficiaries can?t claim the loss. This doesn?t make sense to me. Can anyone provide a better explanation?

thanks,Larry

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The lack of a federal estate tax has no bearing on the estate's income tax, except where "income with respect to a decedent" is included.

Certain income tax losses do carry from an estate on termination to the beneficiaries: An NOL, a capital loss, and in the TERMINATING YEAR, amounts that exceed gross income other than the estate's exemption ($600) and charitable set-asides. [IRC section 642(h)] It is possible that some of the fiduciary and attorney feeds were chargable against business income and therefore can be carried to 2008 as an NOL.

If you actually distributed all of the assets by the end of the 2007 tax year for the estate, then it may be to your benefit to amend that year's return to be final.