Death and Taxes: Some Basics on Estates and Taxes

EDITOR’S NOTE:

For obvious reasons, anyone who has had a loved one die and/or is the trustee on an estate will need to file certain state and federal tax forms. As leading probate attorneys in Dallas, we often get asked questions about tax filing requirements for estates. This blog overviews the high level requirements, but you are strongly advised to seek out a professional accountant or tax service to verify any tax filing requirements.

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What are the tax considerations that I need to consider when a loved one has died?

Most probate attorneys will refer clients to an accountant to address the tax questions related to death, which can quickly become complex. However, clients should understand the basics and understand that a personal representative of an estate may need to hire an accountant and the personal representative may have the responsibility to file tax returns. (The other duties of a personal representative are better known, such as collecting assets, paying the decedent’s creditors, and distributing the remaining assets to heirs or beneficiaries.)

The four federal returns in question are:

1. the Estate’s fiduciary income tax return (IRS Form 1041);
2. the decedent’s final federal income tax return, if applicable;
3. the decedent’s final gift tax return (IRS Form 709), if applicable;
4. the decedent’s federal estate and generation skipping tax return (IRS Form 706), if applicable;

Additionally, there may be state returns to file, depending upon the particular facts involved. If there are trusts, this would add an additional level of complexity. If there is a closely held business in the estate, this also will add an additional level of complexity.

In most cases, the Estate will not need to file an IRS Form 706. The Estate would only need to do so if the value of the decedent’s gross estate on the date of death exceeds the exclusion amount that was in effect on the date of death. For 2017, the exclusion amount is $5,490,000. Even if the value of the decedent’s gross estate is below the applicable exclusion amount, the Estate/personal representative may still wish to file IRS Form 706 to take advantage of the option of portability.

When are the deadlines to file the tax returns? The decedent’s final federal income tax return is due on April 15th of the year following the year of the decedent’s death. The deadline to file form 706 is 9 months after death. The deadline to file the Estate’s fiduciary income tax return will vary, depending upon whether the personal representative elected a calendar year or fiscal year. The personal representative may request extensions.

EDITOR’S SUMMARY

In this blog post, we discussed some of the basic tax filing requirements for an estate in Texas. It can often be confusing to the layperson as to what are the responsibilities of the attorney, and those of the accountant in terms of an estate. In many situations, you will need both a probate attorney and an accountant to successfully navigate issues surrounding probate for an estate here in Texas. If you have questions, reach out to one of our Dallas probate attorneys for assistance. We have offices located in both Plano and Dallas for your convenience.

 


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