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Filing tax returns can be an important part of estate administration

On Behalf of | Jun 24, 2024 | Estate Administration And Probate |

There are many complicated and even frustrating tasks required during estate administration. The process helps ensure the fulfillment of a decedent’s personal obligations and the proper distribution of their resources.

The personal representative of an estate has to attend probate court hearings. They have to review financial records and send payments to creditors. They have to provide beneficiaries with information about their inheritance rights and the current state of the estate.

They may even need to handle complicated tax matters. When someone dies, taxes can be a major concern. A multi-million-dollar estate could be at risk of estate taxes. Even if a testator plans carefully to avoid estate taxes, there could very well be income taxes due after they die. Filing income tax returns is a responsibility that typically falls to the personal representative of an estate.

What tax returns does an estate require?

People typically don’t think of taxes other than estate taxes when considering the probate process. However, there can also be income taxes and possibly even other costly taxes, like capital gains taxes, to address and cover.

Income taxes are usually the direct responsibility of the estate. It is common for the personal representative of an estate to file a final tax return on behalf of the decedent. They may need to file a return even if it has been years since someone worked. They use estate resources to pay any outstanding tax balance owed.

The estate itself couldn’t theoretically have an obligation to cover income taxes. If the personal representatives sells estate property, taxes could be due if they generate $600 or more in profit from those sales.

There could be other taxes to consider too. Inheritance and capital gains taxes are typically a concern for beneficiaries, not the representative of the estate. Those who inherit assets and sell them after receiving them may have to pay taxes based on the appreciation in property value in some cases.

A failure to file appropriate tax returns and to retain resources to cover tax obligations could result in personal financial liability for the representative of an estate after they complete estate administration. Knowing what tax obligations come with estate administration can help personal representatives protect against personal liability for unpaid income taxes.