Taxes are among the responsibilities that persist even after someone dies. As the executor or personal representative of someone’s estate, you may file their last tax return to settle their income tax obligations and advise the IRS of their passing. If the estate is large enough, you may also have to pay estate taxes before distributing property to the beneficiaries.
Frequently, testators leave instructions for their executors to conduct estate sales and sell some of their personal property so that their loved ones can split the money earned from the sale. An estate sale takes time to arrange and patience to complete. It may also require another tax return.
The estate may have to file an income tax return, too
The amount of money generated through the estate sale will determine if you have to file an income tax return for the estate itself. When the sale of estate assets generates $600 or more, the executor will typically need to report those earnings and pay taxes from the estate sale proceeds.
Understanding this obligation is key, as premature distribution of funds from the sale could leave nothing for the executor to use for tax purposes. It could also mean that they fail to file the tax return and open the door to legal issues through that oversight. Unpaid taxes and unfiled returns are among the probate mistakes that can lead to financial consequences for the executor of the estate.
Understanding the financial and legal obligations involved in estate administration helps executors avoid possibly expensive mistakes.