Remember the old adage, “There are only two certainties in life: death and taxes”? The bad news is that there is some truth to it. The good news is that we can help you with both. Most people believe the requirement to file taxes dies when you do, but that could not be further from the truth. Even after you’re gone, the government doesn’t let you out of paying your fair share to Uncle Sam.

So here’s the low down on individual and fiduciary tax returns, organized by tax return type:

  • 1040 – If someone died in 2016 but earned enough income to have needed to file a tax return if they had lived, then a final 1040 must also be filed after they died. If there is a surviving spouse, it will usually be done as a final joint return. If there is no surviving spouse, the Personal Representative or Trustee is responsible for filing the final 1040. Both Michigan and Federal 1040 returns are required.
  • 1041 – A 1041 is an income tax return for the deceased person’s estate or trust. A 1041 is required when the estate or trust has income in the year after the decedent died. A 1041 might also be required if real estate is sold. Even if not required, filing a 1041 may be desired to pass along credits and other deductions to beneficiaries who qualify to use them. The Personal Representative or Trustee is required to file the 1041. Again, both Michigan and Federal returns are required. If a 1041 is required, it is best left to a professional who is well versed in knowing which income is properly placed on a 1041 versus the 1040. If you have hired an attorney, they should be able to help or at least guide you to a tax professional.
  • 709 – A 709 is required when someone gifts more than $14,000.00 to someone else, including children or other relatives. The gift could be real or personal property, tangible or intangible, made directly or indirectly, in a trust, or by any other means. If you buy a car valued at more than $14,000.00 for your adult son and don’t request anything in return, a 709 must be filed. However, if the gift is deductible because it is made to a charity, a 709 is not required.
  • 706 – A 706 is a Federal estate tax return for estates valued at over $5.45 million for decedents who died in 2016. It is important to note that this amount is adjusted annually for inflation annually. No corresponding Michigan estate tax return is required, but other states do impose estate taxes. While the threshold for estate tax exemption amount is quite high, meaning that very few 706 forms are filed annually, it wasn’t too long ago that the filing threshold was much lower, meaning that many more returns were required to be filed. And as tax policies change, so could the filing threshold, which is why it is important to keep abreast of these changes. Likewise, many are surprised to learn that their estate, for 706 purposes, includes pretty much anything you have an interest in when you die. This includes real estate, investments, life insurance, jointly held assets, businesses, artwork, and other collectibles. Again, the Personal Representative or Trustee of the Decedent’s Trust is the person responsible for filing the 706. If a 706 is required, it is important to find a CPA or attorney who is well versed in filing 706s. They are quite complex, time consuming, and can be costly to prepare.

We’re Here and Happy to Guide You

This summary only covers the basics of what kind of return might be required upon someone’s passing, and doesn’t even begin to scratch the surface of all of the nuances involved. If you are a surviving spouse, Personal Representative, Trustee, or other type of Fiduciary, and have questions about your legal obligations to file tax returns, contact us today for a free consultation at 248.399.3300 or Darren@TheProbatePro.com.

Did You Know We’re On Social?

Follow our pages to stay current with all of our celebrations, stories, and news on Facebook, Twitter, and LinkedIn