During the probate process, a personal representative carries out a testator’s last wishes. If there isn’t a will, then they follow intestate succession laws.
They secure and distribute the assets of the decedent. They fulfill financial obligations by paying debts. They also need to handle tax obligations incurred by the decedent and the estate itself. Particularly large estates worth millions of dollars could be subject to estate taxes.
Income taxes, or at least income tax returns, are a standard component of modern estate administration. What tax return issues do personal representatives typically need to address?
A final income tax return
The person who died may have passed with a remaining balance due to the Internal Revenue Service (IRS). A final income tax return helps reconcile any estimated payments with the actual income tax obligations of the deceased person. The personal representative may need to use estate resources to cover any taxes due after their passing.
An estate income tax return
The estate itself may require an income tax return. The instructions provided by the testator may require that the personal representative liquidate certain resources.
Other times, an estate sale is the logical way to generate capital to cover debts or to allow beneficiaries to share in the value of assets. If the sale of estate resources generates $600 or more in income, the personal representative may need to file an income tax return for the estate.
The failure to fulfill tax obligations can lead to financial liability for a personal representative. Having support while learning about the obligations inherent in the probate process can help people limit their liability and fulfill their obligations.