Benjamin Franklin once quipped that “…in this world, nothing can be said to be certain, except death and taxes.” He was being witty, but his wisecrack contains some real wisdom. Paying taxes is an often unexpected part of managing a loved one’s estate.
Most estate administrators will not have to worry about calculating estate taxes since the first $12,060,000 of an estate will be exempt from federal estate taxes in 2022, and Mississippi does not have an estate tax, inheritance tax, or gift tax. However, an estate administrator may still need to pay some taxes on behalf of the person who has died.
One of the tasks an estate administrator must take care of is filing a final individual income tax return on behalf of their loved one.
“In general, the final individual income tax return of a decedent is prepared and filed in the same manner as when they were alive. All income up to the date of death must be reported and all credits and deductions to which the decedent is entitled may be claimed,” according to the IRS.
Filing On Behalf Of An Estate
Once someone dies, all of their assets and debts are transferred to another entity. Some assets, like accounts with a named beneficiary, automatically transfer to their new owner. Most assets transfer to the deceased person’s estate and are then managed by the estate administrator.
Estate-owned assets sometimes continue to increase in value or produce income. Most debts do not magically disappear at the time of the debtor’s death but are instead taken over by the estate. The estate administrator is responsible for managing assets, paying debts, and filing an estate tax return with the IRS that reflects this activity and pays any taxes that are accrued or outstanding.
Where Does The Money To Pay Debts Or Taxes Come From?
The estate administrator is responsible for managing the decedent’s estate, and that means using the assets in it to pay off debts and make sure Uncle Sam gets his cut. If a decedent’s estate is insufficient to pay all debts (referred to as an insolvent estate), federal income taxes owed by the decedent and estate income taxes must be paid first. Creditors usually end up writing off any remaining debts that cannot be paid off.
Is The Estate Administrator On The Hook For Unpaid Taxes?
It is important for estate administrators to make sure the IRS, and if applicable, the state of Mississippi, get paid the taxes they are owed before anyone else dips into the estate. If the money that should have been used to pay taxes owed by the deceased person or their estate is used for other purposes, the government can hold the estate administrator personally responsible.
Preserving Your Wealth and Protecting Your Loved Ones
At Palmer & Slay, PLLC, we provide skilled legal counsel to estates of all sizes in the Brandon, Mississippi area and beyond. Whether you are a high-net-worth client who wants to use sophisticated techniques to minimize your expected estate tax burden, or a newly-appointed estate administrator working through your grief, we are here for you. Please contact us today to schedule an initial consultation.