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Taxes in Probate and Trust Administration

As the successor trustee of a trust, executor of a will, or the administrator of an intestate estate (ie. no will or trust), one of your duties will be to pay all taxes due the federal government and the state of California.

Personal Income Tax Returns Once someone has died, a personal income tax return will have to be prepared and filed for the year of the decedent’s death. Income received by the decedent from January 1 until the date of death will have to be reported. If the estate receives income however, after the date of death, that will be reported on the estate tax return. Deductions for medical expenses of the decedent can be taken for one year after the date of death, to take into consideration expenses of a last illness. All other deductions, such as for mortgage interest, property taxes, etc. must have been expenses incurred prior to the date of death.

Fiduciary Tax Return The estate income tax return, call a fiduciary tax return, is filed annually as long as the estate is open. Dividends, interest, capital gains, and rents are all reported on this return. Deductions can be taken for mortgage interest the estate pays on real property and legal and administrative fees. This return, unlike the personal return, can be filed on a fiscal year basis. The duty to file a fiduciary return exists as long as the trustee, executor, or administrator is administering the estate. The final fiduciary return can be filed when the estate is in a position to be closed and final distributions made to beneficiaries.

Estate Taxes If a person dies in 2011 with over $5 million in assets, an estate tax return also has to be filed within 9 months of the date of death. Extensions for 6 months can be obtained. If there are gifts to qualified charities, those can be deducted as can debts of the decedent such as funeral expenses, last illness medical expense, and legal fees. The current federal estate tax exemption is $5 million which will last until 2013. Congress can act before that date to keep the exemption at the current rate or to change the exemption Keep in mind that it is the federal estate tax exemption in the year of death that governs.

Other Taxes Another type of tax that will have to be paid by the trustee, executor, or administrator of an estate is property taxes if the estate owns real property. A gift tax may also be necessary if the decedent made gifts in excess of the gift allowance for the year of death.

To help you with tax issues, the attorneys at the Law Office of Scott C. Soady, A Professional Corporation will work with the decedent’s CPA or the trustee, executor, or administrator’s CPA. We also have CPA’s we can refer you to for assistance with tax issues. It is an extremely important that all tax issues are handled competently and efficiently since there may be substantial penalties and interest that may be incurred if not handled correctly.

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