When someone passes away, there is a good chance their estate will still owe certain taxes. Even if inheritance taxes do not apply, the deceased may still owe property taxes for the year on any real estate they own. If they were a business owner, that business might have unpaid taxes. Even if they were just an employee, they could owe income taxes for the year.
Some individuals plan ahead to address these issues. For example, someone who has received a serious medical diagnosis may create a trust or set aside funds specifically to pay off taxes. However, many do not take this step, especially if their passing is unexpected—every year, around 40,000 Americans pass away in car accidents, for instance. So, who is responsible for paying these taxes?
The estate executor
The government still expects the taxes to be paid, and it is the responsibility of the estate executor to ensure this happens. The executor is authorized to access financial accounts and transfer assets, and they must prioritize paying taxes and other debts before distributing the remaining assets to beneficiaries.
This responsibility often goes beyond taxes. Someone who passes away unexpectedly might still owe money to utility companies or credit card companies. They may have outstanding mortgage payments or car loans. The estate executor is tasked with handling these obligations on behalf of the deceased.
This underscores the importance of a comprehensive estate plan. Those navigating this process must understand the necessary legal steps to ensure everything is handled correctly. If you are drafting an estate plan or acting as an estate executor, take the time to carefully look into your options.