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Losing a loved one is never easy. In addition to grieving their loss, which can be a lifelong process, there is also the additional task of managing the deceased person’s affairs or estate. This can be especially burdensome if you are named as their executor, trustee, or personal representative.

When administering an estate and acting on behalf of a loved one, there are several moving parts to consider. These include managing the distribution of assets and ensuring that final legal and tax requirements are met.

A qualified attorney can assist with required legal filings, such as opening a probate estate or retitling assets.

When it comes to required tax filings, a final individual return and an estate or trust return (or both) are often required. Common tax returns required after death are summarized below. Consult with a qualified tax preparer to see how they may apply to your situation.

Final Individual Return (Form 1040)

An individual’s final income tax return reports income received during the year, prior to their passing. If married, a joint return can be filed and signed by the surviving spouse. If someone else has been appointed as personal representative or executor, they should sign the return. If a refund is due, make sure to include Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer.

Estate Income Tax Return (Form 1041)

An estate return is filed to report income received after death. This form is generally required if the individual’s estate received gross income of $600 or more after their death, or there is a beneficiary who is a nonresident alien. In order to report income received after death, the executor must first apply for a tax ID number for the estate, also called an employer identification number, or EIN.

In general, an estate’s gross income is determined in the same manner as an individual, with similar deductions. If distributions (other than specified dollar amounts) are made to beneficiaries, a Form K-1 is usually generated to pass estate income to individual beneficiaries. If no distributions are made, the estate generally pays tax on income earned.

Trust Income Tax Return (Form 1041)

If the decedent had a revocable living trust at their passing, the trust usually becomes a separate irrevocable entity at their death. The entity will require a unique tax ID number (EIN), if not already obtained. A trust income tax return is generally required if there is any taxable income for the tax year, gross income of $600 or more, or a beneficiary who is a nonresident alien.

Like an estate, if distributions (other than specified dollar amounts) are made to beneficiaries, or if income is required to be paid to a beneficiary, a Form K-1 is usually generated to pass trust income to individual beneficiaries. If no distributions are made, or required to be made, the trust typically pays tax on income earned.

If both estate and trust income tax returns are required, the two entities can make a special election to be considered as one entity for tax filing purposes. This allows only one Form 1041 to be filed.

Estate (and Generation-Skipping Transfer) Tax Return (Form 706)

Estates valued in excess of the estate tax exemption amount ($11.7 million for 2021) are subject to estate tax and must file Form 706. Keep in mind that any gifts made during the deceased’s lifetime in excess of the annual exclusion amount (currently $15,000) are added to assets owned at death to determine the estate’s value. If desired, Form 706 may also be filed for deceased spouses whose estates are less than the exemption amount to utilize an option called “portability” and transfer any unused exemption to the surviving spouse.

State Returns

Individual states may also have estate or inheritance tax filing requirements. Make sure to review the filing requirements for the individual’s state of residence, in addition to any state where the individual owned real estate, business, or other property to determine whether returns are required or tax is due.

Administering a loved one’s estate or trust involves many moving parts and considerations. Consult with a qualified tax preparer to help you determine what tax returns should be filed after death.

This is intended for informational purposes only and should not be construed as personalized financial advice. Please consult your financial professional regarding your unique circumstances.

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