Estate administration comes with several key responsibilities. Personal representatives or executors typically need to use estate resources to pay debts. They have to communicate with others, including beneficiaries or heirs. They may even be responsible for addressing certain tax obligations.
Many people focus on estate taxes, which are relatively uncommon. If an estate is worth millions of dollars, then estate taxes may apply. However, there are other tax responsibilities that may arise during estate administration regardless of the size of the estate.
A failure to address tax obligations could lead to personal liability or probate litigation. Personal representatives need to understand their obligations to avoid making mistakes that could lead to financial consequences and/or their removal from their position.
Filing tax returns may be necessary
Even in cases where there is clearly no concern about estate tax, filing income tax returns may still be necessary. Personal representatives generally need to retain enough resources to address any residual income tax obligations owed by the decedent.
To fulfill that responsibility, they typically file a final federal income tax return on behalf of the deceased individual. Even those who haven’t had employment income in years need to have a final return filed on their behalf after they die.
In some cases, they may have to file an income tax return for the estate as well. If they sell assets and generate $600 or more in revenue, then the estate itself may have an obligation to file a return and possibly pay taxes.
Recognizing and fulfilling income tax obligations is a critical aspect of estate administration. Personal representatives may need help identifying likely liabilities and fulfilling their obligations in a timely fashion.
