Benjamin Franklin famously stated “In this world nothing can be said to be certain, except death and taxes.”

Although certain, a discussion on death or taxes is the last thing most people want to have. When a loved one passes, the furthest thing on family members’ minds is whether they will have to file taxes for the deceased individual. Discussing these subjects with your probate attorney will provide clarity on a often confusing subject.

It is important to remember that an individual may pass away during the tax year, thus taxes still need to be filed for the time worked or for income received. It is also important to keep in mind that income taxes may not be the only return that needs to be filed.

Probate Taxes

A decedent and their probate or trust estate are separate taxable entities. So if filing requirements are satisfied, a personal representative or trustee may have to file different types of tax returns.

First, a personal representative may need to file income tax returns for the decedent (Form 1040). The decedent’s Form 1040 for the year of death, and for any preceding years for which a return was not filed, are required if the decedent’s income for those years was above the filing requirement.

Second, a personal representative may need to file income tax returns for the estate (Form 1041). To file this return you will need to get a tax identification number for the estate (called an employer identification number or EIN). An estate is required to file an income tax return if assets of the estate generate more than $600 in annual income. For example, if the decedent had interest, dividend or rental income when alive, then after death that income becomes income of the estate and may trigger the requirement to file an estate income tax return.

Third, a personal representative may need to file an estate tax return (Form 706). Estate tax is a tax on the transfer of assets from the decedent to their heirs and beneficiaries. In general, estate tax only applies to large estates. Most estates do not require the filing of an estate tax return. For example, if the death occurred in 2016, the estate tax only occurs in estates with combined gross assets exceeding $5,450,000.

The Personal Representative or Trustee has a duty to file the decedent’s final Federal, State and local tax returns. These tax returns must be filed by the 15th day of the fourth month after the end of the decedent’s tax year in which he or she died. This is usually April 15 of the calendar year after decedent’s death. Any tax liability must be timely paid by the Personal Representative or Trustee from the assets.

The IRS has a process of notifying it of the appointment of the personal representative. Form 56, Notice Concerning Fiduciary Relationship, notifies the IRS of the existence of a fiduciary relationship. A fiduciary (trustee, executor, administrator, receiver or guardian) stands in the position of a taxpayer and acts as the taxpayer.

Old Tax Debt

Lastly, in regard to taxes, it is important to ascertain whether the decedent has any outstanding income tax debt. Any letters or other notices received from taxing authorities should be reviewed carefully. There can be harsh consequences to both the Personal Representative, Trustee and heirs if assets are distributed while taxes are due and owing. To obtain a proof of claim (also called a creditors claim) from the IRS contact the Collection Advisory group for the area that includes the decedent’s last address.

As a personal representative, it may be necessary to change the decedent’s address of record in order for you to receive IRS correspondence regarding the decedent and/or their estate. To change the address of record use IRS Form 8822.

The responsibilities that come with being a personal representative of an estate are not small, but with the help of your attorney you can ensure all appropriate actions are taken to benefit the estate and to file the correct documents with the IRS or with the court.

The Probate Pro will provide the appropriate legal advice to ensure that all taxes are filed properly and on time.