Estate administration involves more than just the distribution of an individual’s property. Before the final transfer of assets from the estate, the personal representative must ensure that they have fulfilled all valid financial obligations.
Their responsibilities usually include sending notice to creditors to allow them to make repayment claims. Filing tax returns is also a standard element of estate administration. Failing to file returns and pay any amount due using estate resources can lead to liability for the personal representative.
What tax returns do personal representatives file?
The final income tax return
In some cases, the person who died may not have filed income tax returns in the years leading up to their passing. Even if they did not have traditional income but relied on Social Security benefits or retirement savings, filing a final income tax return is generally necessary. Personal representatives need to ensure they reconcile any outstanding tax debts and use estate resources to cover what is due.
The estate’s income tax return
Frequently, estate administration involves liquidating certain resources. Personal representatives may sell vehicles and real property. They may conduct estate sales where they sell personal property. If the sale process generates $600 or more in revenue, then the estate itself has an income tax obligation to fulfill. The personal representative must declare the sale proceeds and ensure they keep enough of the estate’s money to pay the taxes due.
Those administering estates often need guidance to ensure that they fulfill all of their obligations and minimize their personal liability. Working with a probate and estate administration attorney makes it easier for personal representatives to avoid financial liability due to common oversights.