North Dakota Estate Income Tax and Form 38: A Fiduciary's Guide

The first thing most people want to know about North Dakota estate taxes is whether they exist at all. The answer is no — North Dakota repealed its estate tax in 2005 and there is no inheritance tax. There is no North Dakota return to file simply because someone died and left an estate.

But estates that generate income while they are being administered — royalties from mineral rights, rent from farmland, dividends from investments — are a different matter entirely. Those estates must file a North Dakota Fiduciary Income Tax Return (Form 38), and the rules come with several procedural traps that catch executors by surprise.

First Step: Get an EIN for the Estate

Before any estate tax return can be filed, the personal representative needs a federal Employer Identification Number (EIN) for the estate. This is a nine-digit number assigned by the IRS that identifies the estate as a separate taxpaying entity — distinct from the deceased individual's Social Security number.

The EIN application is free and takes minutes online at IRS.gov (search "EIN assistant"). Select "Estate" as the entity type and have the decedent's Social Security number and date of death ready. The IRS issues the EIN immediately upon completing the online application.

The EIN is needed to:

• Open the estate checking account (banks require it)
• File the federal Form 1041 (fiduciary income tax return)
• File North Dakota Form 38
• Set up distribution orders with any energy operators paying royalties
• Receive 1099 forms for income earned by the estate

Getting the EIN should be one of the first administrative steps after the appointment, ideally within the first week.

Does North Dakota Have an Estate Tax?

No. North Dakota eliminated its state estate tax for deaths occurring on or after January 1, 2005. There is no North Dakota estate tax return to file, and no state-level transfer tax applies to the assets passing from the estate to the heirs.

North Dakota also has no inheritance tax. Heirs — regardless of how closely or distantly related they are to the deceased — owe no North Dakota tax simply because they receive an inheritance.

The form that does exist — Form 54-91, the North Dakota Estate Tax Return — is a historical artifact. It appears in the state's forms library but applies only to deaths before 2005. You can disregard it entirely for any modern estate.

The federal estate tax is a different matter. If the gross estate exceeds the federal exemption threshold (which adjusts annually), the personal representative must file IRS Form 706 with the IRS within nine months of death. This federal exemption is the main threshold to watch for large agricultural estates, Bakken mineral interests, and other high-value North Dakota estates.

The Final Individual Income Tax Return

Two separate returns cover the deceased individual's income — one while they were living, and one for any income generated by the estate after death.

The final individual income tax return covers income from January 1 of the year of death through the date of death. This is filed like any other personal return: federal Form 1040 and North Dakota's individual income tax return (Form ND-1). The filing deadline is the same as any other individual return — April 15 of the year following the year of death, unless extended.

The personal representative signs the return on behalf of the decedent. If the deceased was married and the surviving spouse is filing jointly, the surviving spouse can file a joint return for the year of death.

When North Dakota Form 38 Is Required

If the estate generates income after the date of death — before the assets are fully distributed to heirs — the estate must file a separate Fiduciary Income Tax Return, which is Form 38 at the North Dakota level and Form 1041 at the federal level.

North Dakota's rule follows the federal trigger: if a fiduciary is required to file federal Form 1041, they are also required to file North Dakota Form 38 (assuming the estate has North Dakota-sourced income or a North Dakota resident beneficiary).

Common examples of estate income that trigger a Form 38 filing:

• Oil and gas royalties from Bakken mineral interests
• Cash rent from farmland during the administration period
• Dividends and interest from investment accounts held in the estate
• Gain from selling estate property at a price above the stepped-up cost basis

The filing deadline for Form 38 mirrors the federal Form 1041 deadline: the 15th day of the fourth month after the end of the estate's tax year. For estates on a calendar year, that is April 15.

Quarterly Estimated Payments: Form 38-ES

If the estate expects to owe $1,000 or more in North Dakota fiduciary income tax for the year, the personal representative must make quarterly estimated tax payments using Form 38-ES. The same quarterly payment schedule applies as for individual estimated taxes.

Estates with significant mineral royalties or rental income during a long administration period can easily reach this threshold. Missing quarterly payments results in underpayment penalties, which compound over the administration period.

Non-Resident Beneficiary Withholding

This is the procedural trap that most catches out-of-state executors managing North Dakota estates.

If the estate distributes income to non-resident beneficiaries — heirs who live outside North Dakota — the fiduciary must withhold North Dakota income tax on those beneficiaries' shares of the North Dakota distributive income. The withholding rate is 2.50% of the beneficiary's distributive share.

Withholding is mandatory unless:

• The non-resident beneficiary's share of North Dakota income is under $1,000, or
• The beneficiary elects to be included in a composite return filed by the fiduciary

Failure to withhold when required creates a liability for the personal representative personally — not just the estate. The North Dakota Office of State Tax Commissioner treats the withholding obligation as a fiduciary duty, and non-compliance generates interest and penalties.

The composite return option is often preferable for estates with multiple out-of-state heirs. Instead of each beneficiary filing a separate North Dakota non-resident return, the fiduciary files a single composite return on their behalf. Ask your CPA whether this approach simplifies the filing for your specific situation.

E-File Requirement for Large Estates

For estates with ten or more beneficiaries, the North Dakota Office of State Tax Commissioner requires Form 38 to be filed electronically. Paper returns in these circumstances will not be processed and will trigger failure-to-file penalties — even if the return itself is complete and correct.

This affects estates with complex ownership structures: agricultural operations with many heirs, mineral interest fractions divided among a large family, or investment accounts with beneficiaries spread across multiple branches of the family.

Property Tax: The Gatekeeper to Deed Recording

While there is no estate tax in North Dakota, property taxes create a mandatory compliance checkpoint for real property transfers.

Under N.D.C.C. § 11-18-02, the county recorder will refuse to record any deed that changes the property description unless it bears an Auditor's Certificate of Transfer — a certification from the county auditor that all delinquent and current real estate taxes and special assessments have been paid in full.

This means the personal representative must contact the county auditor, confirm the current tax balance, and pay any outstanding amounts before any deed from the estate to the heirs can be recorded. There is no workaround. The auditor acts as a legal gatekeeper, and the recorder cannot accept the deed without the certificate.

One exception: deeds covering exclusively mineral interests are exempt from the auditor's certificate requirement. The mineral estate is treated separately from the surface estate for this purpose.

The North Dakota Estate Settlement Guide includes a complete tax compliance checklist covering the final individual return, Form 38 filing obligations, quarterly estimated payments, non-resident withholding requirements, and the property tax clearance process before any deed recording.

The CPA Trigger Point

Not every estate needs a CPA. A simple estate with no income-producing assets can be settled without one. But the moment any of the following apply, professional tax help is worth the cost:

• The estate holds producing oil and gas mineral rights
• Agricultural land generates rent or crop share income during administration
• Non-resident beneficiaries receive distributive income from the estate
• The gross estate is large enough to require federal Form 706 analysis
• The estate has ten or more beneficiaries requiring electronic filing

The Form 38 instructions are available on the North Dakota Office of State Tax Commissioner website (tax.nd.gov). The instructions are moderately detailed but assume familiarity with federal fiduciary income tax concepts. If the federal Form 1041 is familiar territory, North Dakota Form 38 follows the same structure with a few state-specific adjustments.

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