The Birth Of The Taxpayer’s Estate

June 15, the day Mary passed away, was a somber day for her entire family – especially Emma, Mary’s daughter. But unlike the rest of the family, Emma had little time to mourn. In addition to managing her mother’s funeral arrangements, Emma was entrusted to serve as the executor of Mary’s estate – and there was much to be done.

For legal and financial purposes, Mary’s death is also observed as the “birth date” of Mary’s estate. As the estate’s executor, Emma is responsible for collecting her late mother’s assets, paying creditors and distributing the remaining assets to heirs.

Being in charge of someone’s estate can be challenging. Below are five tax responsibilities all executors must consider.

5 Tax Responsibilities of Executors

1. You may need to apply for an employer identification number for the estate.
2. You are responsible for filing the deceased’s final income tax returns.
3. If the estate receives income totaling more than $600, you are responsible for filing Form 1041 on behalf of the estate. Choosing the right fiscal year for the estate and timing of distributions can save money. A financial advisor can help you identify savings opportunities.
4. There might be a gift or estate tax return filing requirement. Even if filing a federal estate tax return is not required due to the $5 million inflation adjusted exemption, it may be in your best interest to file the return anyway, especially if the decedent is survived by a spouse. This may be necessary due to a concept of portability which allows the surviving spouse to inherit the deceased spouse’s unused estate tax exemption. However, to claim a claim to the exemption, an estate tax return must be filed to elect portability regardless of the size of the estate. A financial advisor can help you navigate the tax code.
5. Finally, as the executor, you are responsible for paying all taxes that are owed.

Don’t Be Late

In addition to tracking down her mother’s assets and debts, as the executor of Mary’s estate, Emma may be subject to penalties if tax returns associated with Mary’s estate are not filed in a timely fashion. A great way to avoid these penalties is to work with a tax expert who can not only complete and file the initial income tax documentation, but can file for extensions if needed.

Email Rea & Associates to learn more.

By Inez Bowie, CPA, CSEP (Marietta office)