The job of an estate executor is to identify estate assets, pay off debt and then distribute what is left in the estate to heirs and beneficiaries. In addition, an executor must file certain tax returns and pay any taxes due on the estate. Handled improperly, the IRS may pursue the executor for any penalties and interest on taxes not paid.
Being the executor of an estate is a serious responsibility; here are four major steps that executors need to consider when closing an estate:
Filing a final 1040. The executor is responsible for filing the decedent’s taxes for the year that he or she died. If the decedent’s estate is in excess of $5.5 million, the executor should consult with a tax estate planning expert for strategies in minimizing any estate tax.
Estate income tax return. This is different than the decedent’s final income tax return; any income generated by estate assets must be reported on Form 1041 unless the assets avoid probate and go to a surviving spouse or other heirs designated as proper beneficiaries.
Estate’s estate tax return. Any estate in excess of $5.5 million for a decedent who dies in 2013 may be subject to federal estate tax. A Form 706 is due nine months after the death of the decedent, and this deadline can be extended up to six months. Proceeds of a life insurance policy, while usually free of income tax, are usually included in the estate when calculating estate taxes, unless the beneficiary is the surviving spouse and that spouse is a US citizen.
Other necessary items. As executor, you will be required to obtain a federal employer identification number for the estate if you are filing Form 1041 and/or Form 706. You will also need to file a Form 56 notifying the IRS that you are acting on behalf of the estate when it comes to tax matters. In addition, you’ll need to open a checking account in the name of the estate to pay expenses and bank income earned by the estate. Again, an estate administration attorney can be an invaluable asset to you as an estate executor.
The Flanigan Law Group provides Southern California residents with personal attention for estate planning, administration and litigation legal services. When disputes between families, arise, they are very successful in resolving legal estate issues quickly and efficiently while preserving financial and emotional resources. Contact the Flanigan Law Group at 949-450-0042.