Estate administration involves more than just handing out inheritances to heirs or beneficiaries. Settling financial obligations is an important component of probate proceedings, and it typically happens before the final distribution of property.
Personal representatives must provide written notice to creditors. They also generally need to resolve any unpaid taxes due by the deceased individual. In some cases, there may be additional taxes due. An especially large estate may need to cover estate taxes. The estate itself could also theoretically owe income taxes, which are separate from the funds owed by the person who died.
What situation makes an estate responsible for income taxes?
The sale of the estate’s resources
Estate income taxes are a financial concern in scenarios where the personal representative must sell or liquidate estate property. That sale may be the result of instructions from the testator. They may have requested the sale of their personal property so that the personal representative can donate the proceeds or distribute them evenly among their beneficiaries.
Sometimes, personal representatives must liquidate estate resources to cover the financial obligations of the decedent. In either scenario, if the sale process generates $600 or more in revenue, the personal representative must file an estate income tax return and retain funds to pay those taxes. The failure to file tax returns and pay the funds due could trigger liability for the personal representative.
Retaining the support of an estate administration attorney may make it easier to fulfill all of the responsibilities of the estate administration process. People who understand their responsibilities are less likely to make mistakes that could ultimately result in legal or financial consequences.