Like most seemingly simple questions, the answer to the question of whether you should file one or more tax returns for an estate that has yet to be finalized is “it depends.”  Specifically, if and when you need to file tax returns on behalf of a decedent depends on the following:

• Type of tax return
• Decedent’s date of death
• Your legal relationship to the decedent

Case Study

To help understand the tax requirements that can arise when a person dies, let’s set up a case study. Assume that your wealthy Aunt Matilda died on Feb. 5, 2022. She was a single lady who never married and her will names you as the executor of her estate. You therefore become the personal representative of her probate estate, which you open in the probate court of the county in which she died. However, in addition to her probate estate, Aunt Matilda also had a complex estate plan that included several trusts, the assets of which do not form part of her probate estate. Nevertheless, they become part of her overall estate.

As Aunt Matilda’s executor and personal representative, you have the legal obligation to file all of her necessary tax returns when due. These due dates may or may not occur prior to the date when her probate estate becomes finalized.

Form 1041

Any trust or estate that generates income of $600 or more during a calendar year must file Form 1041, U.S. Income Tax Return for Estates and Trusts. If the estate or trust has a nonresident alien as a beneficiary, it must file Form 1041 regardless of the amount of income it generated.

The tax year for a trust generally corresponds to the calendar year, i.e., January 1 – December 31. An estate’s tax year, however, begins on the decedent’s date of death. In our case study, this means that Aunt Matilda’s estate tax year began on Feb. 5, 2022. Nevertheless, it still ends on Dec. 31, 2022, unless you elect to choose a fiscal year, in which case it ends on the last day of the month before the one-year anniversary of her death, i.e., Jan. 31, 2023. Generally, an estate Form 1041 is due four months after the end of the estate’s tax year, whether or not the probate estate has been finalized.

Keep in mind that in order to file a Form 1041 for either Aunt Matilda’s trusts or estate, you will need to apply to the IRS for a Taxpayer Identification Number for each one.

Form 706

If Aunt Matilda’s overall estate is worth $12,060,000 or more, you will also need to file Form 706, the federal estate tax return. Generally, this form must be filed within nine months of the decedent’s death, at which time any tax due must be paid. In our case, this means that if federal estate taxes apply to Aunt Matilda’s estate, you should file Form 706 and pay her estate’s applicable taxes no later than Nov. 5, 2022, whether or not her probate estate has finalized. Again, you will first need to obtain a Taxpayer Identification Number.

If your deceased loved one established his or her estate plan with help from AmeriEstate Legal Plan, Inc., don’t hesitate to contact us regarding any further tax questions you may have.