Skip to main content

Death and Taxes: What are you required to file with the IRS once someone has died?

By September 29, 2017August 6th, 2019Estate Planning

One of the most common misconceptions in probate is that when you die, your debt to Uncle Sam dies with you. Not only is this not the case, but Uncle Sam is one of the strongest debt collectors out there. They have the power to come after the decedent’s probate estate, trust, and other assets to satisfy any tax debts.

Below are a few of the tax filing options in the event that you are filing a return on behalf of a deceased person’s estate or trust.

Income Taxes

If someone dies but earned enough income to have needed to file a tax return while they were still living, then a final 1040 must be filed after their death. If there is a surviving spouse, it usually will be done as a final joint return. If there is no surviving spouse, the Personal Representative or Trustee is responsible to file a final 1040. In addition, while certain types of assets owned by a deceased person will receive a step up in basis, if these assets (such as stocks, bonds, or a secondary homes) are sold after death, then the sale may result in a capital gain even after taking into consideration the step up in basis. There are may considerations in liquidating accounts or transferring property after the death of the owner. Consulting with an attorney or CPA will be key in helping guide you through the process and options.

Estate Tax Returns

A 1041 is an income tax return for the deceased person’s estate or trust. A 1041 is required when the estate or trust has income in the year after the decedent died. This may be required if real estate is sold. Even if not required, filing a 1041 can be desirable to pass along credits and other deductions to beneficiaries who qualify to use them. The Personal Representative or Trustee is required to file the 1041. While most estates will not have to file a federal estate tax return or pay any federal estate taxes, the residents of several states, and/or a deceased person who owns real estate in several states, may owe state estate taxes. Here in Michigan, both State and Federal returns are required. If a 1041 is required, it is best left to a professional who is well versed in knowing which income is more appropriately placed on a 1041 or a 1040.

Generation Skipping Transfers

A 706 is a Federal estate tax return for estates valued at over $5.45 million for decedents who died in 2016. This amount is adjusted annually for inflation. Because the amount to trigger a 706 is so high, few people will have to file this type of return. For 706 purposes, your estate or trust could include pretty much anything you own or have interest in at the time of your death. This may include real estate, accounts, life insurance, jointly held assets, business interests, guns, coins, jewelry, etc. Due to the complexity of 706 filings, it is good to consult with a CPA to help guide you through the process and outline your obligations.

Gift Taxes

A 709 is required when someone gifts another person more than $14,000.00. This includes children or other relatives. The gift could be real or personal property, tangible or intangible, made directly or indirectly, in a trust, or by any other means. However, if the gift is deductible because it is made to a charity, the IRS will not necessarily require a 709 return. Again, a CPA, Estate Planning, or Probate attorney will be most helpful in reviewing your obligations and options.

If you are not sure if your loved one’s estate or trust will be subject to any taxes, or if you are not sure if what you have inherited will be subject to any taxes, contact Hewson & Van Hellemont, PLC, today for a free consultation at 248-968-5200.

Bruce Rice

Bruce Rice a graduate of Wayne State University Law School practices Family Law, Estate Planning and Probate Litigation and Administration. View Profile

Leave a Reply