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Estate administration and taxes

On Behalf of | May 2, 2022 | Estate Administration |

Estate administrators have important duties after a person dies. In addition to paying debts and distributing assets, administrators must also take care of the federal taxes of the decedent and their estate.

General duties

Probate and estate administration duties begin shortly after a person dies. Afterward, a probate proceeding may be opened within a specified time. The probate court, among its first actions, will appoint an estate administrator for the decedent and their estate. A surviving spouse, another family member, the executor named in the decedent’s will or an attorney usually serve as the administrator or executor.

The probate court issues letters testamentary empowering the estate administrator to act on the decedent’s behalf. The executor must have the letters testamentary to deal with the decedent’s matters.

General duties include collecting all the decedent’s assets, paying creditors, and distributing the remaining assets to heirs and beneficiaries. Their first duty is to provide an accounting to the probate court of the decedent’s assets and debt.

Some assets may have to be apprised to calculate their value. All debts must be verified. Creditor claims against the estate have to be filed.

Tax responsibilities

Decedents and estates are separate taxable entities. An estate administrator sometimes must file different types of returns.

An estate administrator may have to file income tax returns, form 1040 or 1040SR series, for the year of the decedent’s death for any proceeding years a return was not filed.

Next, an estate administrator may have to file tax returns, Form 1041, for the estate. A tax identification or EIN number for the estate will be needed.

Estates must file an income tax return if the estate’s assets generate over $600 in annual income. If the decedent earned interest, dividend, or rental income during their lifetime, that income becomes estate income and may require the filing of an estate income tax return.

The estate administrator must also obtain a new employer identification number for a business that the estate operates after its owner’s death. Administrator also need to report wages or income under the new EIN and pay any taxes that are owed.

Estate administrators may need to locate financial information from the decedent’s records to file returns. The executor can obtain many of these documents may be obtained from the IRS.

Estate administrators will have to file an estate tax return. Taxes are sometimes levied on the transfer of assets from the decedent to their heirs and beneficiaries for large estates.

Attorneys can assist estates and administrators with these responsibilities. They can also help with estate planning that can expedite probate.