The person who serves as the administrator of an estate has many different responsibilities. They need to locate and secure the assets of the estate. They have to notify beneficiaries and creditors about probate proceedings. They have to file paperwork with the probate court and settle all of the affairs of the deceased individual.
Some of those personal affairs will likely have to do with taxes. Taxes are an important responsibility that falls to the representative of the estate. There are numerous times when taxes could be a concern for the administrator of an estate, including the three below.
During income tax season
Your role may require that you file a final tax return for the deceased individual. Even if they did not have any employment income in their last years of life and have not filed tax returns for years, a final income tax return is necessary after someone dies.
The final tax return filed during probate administration helps settle any outstanding tax debts and ensures there are no federal income tax liabilities before the administrator distributes assets to the beneficiaries of the estate.
During probate proceedings
Both Minnesota and the federal government assess estate taxes on Minnesota estates. These are taxes that apply to the estate itself if the total value of the assets it contains exceeds a certain threshold. Both the state and federal tax thresholds are in the millions of dollars. Only multimillion-dollar estates typically have to worry about the state taxes.
Even large estates can sometimes avoid state taxes with proper planning. Looking at how the testator held the assets and establishing an estimated value for the estate can help a personal representative determine if estate taxes may affect the final value of the estate.
After liquidating property from the estate
Executors often have to sell off specific assets and then split the proceeds among the beneficiaries of the estate. Whether the testator wants to sell a business, real estate or just personal property like furniture the sale of estate assets could trigger additional income tax obligations.
Specifically, if the estate generates more than $600 in revenue from the sale of assets, the executor will have to file an income tax return for the estate for that tax year. Learning about the various tax requirements involved in estate administration can help you avoid mistakes that could have major financial consequences.