Tax Filings in Probate Administration

Does the estate have to pay tax? Somebody has died and a personal representative for the estate has been appointed. That person is trying to figure out if the estate is taxable. This is a good question to be asking. But try to remember that it is not the only thing to consider.

What is Estate Tax?

Estate tax is a tax on the right to transfer property at death. Estate tax is only imposed if the estate has a certain value. The federal exemption from having to pay estate taxes is relatively high at the moment. In 2020, over $11 million for a single individual can pass tax-free upon death. The South Carolina estate tax exemption mirrors the federal rule. For South Carolina estates under the threshold, there is no estate tax and no filing required.

How Do I Determine if Need to File Estate Taxes?

This might be a pretty simple calculation for your estate. It is also where I see some confusion from time to time. When there is no estate tax, the personal representative might assume that no tax filings need to be made. That might not be correct. The problem is that there are other tax filings that a personal representative is responsible for. Some need to be considered at the time the estate is opened, in a discussion with your probate lawyer or CPA.

To start, a personal representative should consider individual income tax returns for the decedent. There are a few moving parts here. When the person died and what they already filed is important. There may be joint-filing options for somebody leaving behind a spouse. Sometimes a decedent has missed prior year filings. Those might need to be made by the personal representative. The deadlines to file generally line up with the ordinary filing deadlines of the person who died. In the end, the estate will get a refund or owe taxes.

What If an Estate Continues to Earn Income?

Estate taxes have already been mentioned. So have individual income taxes. But what about the income the estate produces? An estate is a separate entity that that might need to file for income it earns. It has a value when the estate is created. Sometimes that value increases. The increase might be from a business, rental property, or appreciation of investments. Probate administration usually takes a year or longer so some change in value is not uncommon.

Our Probate Attorneys Can Assist You Today

The reality is that estate tax is one piece of the tax puzzle. The issue is when this goes unrealized until attempting to close the estate. A delay is likely. Those that will inherit might get anxious and the IRS may have its own concerns if deadlines were missed.

A personal representative does not have to work through all this independently. It is helpful to have a sense of what the requirements are. The goal should be to get a clear understanding of deadlines when the estate is opened. A probate lawyer or a CPA can help. Often, the client, probate attorney, and CPA all work together. Sometimes it is a mix of these.

Click here to find out more about the Author Rick Callison. 

If you have more questions about estate and tax planning, please reach out to PMC Law Firm at (800) 914-0620 to set up a consultation with our legal team.