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What are the tax obligations stemming from estate administration?

Serving as the executor of an estate can mean taking responsibility for a large number of different, difficult tasks. For example, you will likely need to make an inventory of physical possessions and place a value on each item. You will need to advise creditors and service providers of the death of the testator and arrange for the transfer of services while also paying any final bills from the proceeds of the estate.

Beyond that, you also have an obligation to meet the tax liability for both the deceased party and their estate. If you make a mistake in the administration of the estate, you or beneficiaries from the estate could wind up legally or financially responsible for those errors in the future.

Estates can be subject to taxation in some cases, and the income and assets of the deceased party may also carry some tax burdens. The more you know about tax obligations related to estate administration and asset succession, the easier it will be to avoid mistakes.

You have to file a final tax return on behalf of the deceased

When someone dies, they need to have the income taxes for their last year of life filed with the IRS. Even if the person who died had very little income or survived on retirement funds or Social Security payments, there will be income tax assessments that impact the estate.

If someone died in 2019, the administrator or executor of their estate must file 2019 income taxes and inform the IRS of their death. The executor should also review the deceased's history of tax filings, as they may have to file several years of unfinished returns. Failure to file and fully pay those taxes could result in legal action against those who received financial or other assets from the estate or you as the executor who failed to pay.

For large estates, you may have to pay federal estate tax

Estate taxes require the payments of a portion of an estate over a certain value as part of the transfer from the deceased to the beneficiaries and heirs they left behind. Louisiana does not assess a state estate tax. Regardless of the overall value of the estate or the assets it includes, neither you nor the beneficiaries of the estate have to worry about paying taxes to the state of Louisiana.

However, the federal government does still collect estate taxes from residents of Louisiana. If the testator passed away in 2019, the total value of their estate must be under $11,400,000 to avoid estate taxes. For those who died in 2020, their estate must have a value below $11,580,000 or the estate tax will apply. The amount of tax paid will depend on the total value of the estate.

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Grant & Barrow, A Professional Law Corporation
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