Tax Responsibilities of An Estate Executor
Feb 16, 2016
Serving as the executor (“personal representative”) of someone’s estate can be a difficult job. Just identifying all the estate’s assets can be time consuming. Then there may be life insurance and employee benefit claims to file, appraisals to arrange for, property to manage, debts to collect, and final bills to pay. On top of everything, there are tax-related responsibilities an executor must address.
Decedent’s final return. An executor is responsible for filing the decedent’s final federal income-tax return covering the period from January 1 through the date of death.* Generally, a joint return may be filed with the decedent’s surviving spouse, but that’s not always the best choice. For example, more medical expenses may be deductible if a separate return is filed.
Estate’s income-tax return. An estate often receives income (interest, dividends, etc.) from the decedent’s holdings while the estate is being administered. A federal income-tax return must be filed for an estate in any year its gross income is $600 or more or if any beneficiary is a nonresident alien.* Whether to use a calendar or fiscal year for tax reporting purposes is one of the important decisions an executor has to make.
Estate-tax return. A federal estate-tax return is required if the value of the decedent’s gross estate at death (minus certain lifetime gifts) is more than the basic exclusion amount ($5.45 million for 2016).* An executor has several tax choices to make if a return is required. For example, it’s possible to value the estate on an “alternate valuation date” instead of the date of death. With fluctuating asset values, choosing the best date for estate valuation could be important in minimizing taxes.
The tax decisions an executor makes can affect what’s left for distribution to the estate’s beneficiaries. That’s all the more reason to consult a tax professional if you’re ever called upon to serve as an executor.
- A smaller estate also may require a return in order to transfer any unused exclusion amount to the decedent’s surviving spouse.
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