Personal representatives overseeing estate administration are potentially liable if they make significant financial mistakes. They must ensure they properly manage resources, provide legally mandated notice to creditors and fulfill all valid financial obligations.
Those obligations may include taxes. Estates that are worth millions of dollars could be subject to estate taxes that consume hundreds of thousands or millions of dollars. Only a small minority of estates are large enough for estate taxes to be a concern. Yet, there are other tax obligations that are far more common during estate administration, including income taxes.
What income taxes apply during estate administration?
There are actually two separate income taxes that a personal representative may need to address. Personal representatives typically assume responsibility for filing the final income tax return on behalf of the decedent, and they must pay any balance due using estate resources. Even if the decedent has a surviving spouse, their tax liability typically passes to their estate.
Personal representatives may also sometimes have a responsibility to file an estate income tax return. If they must liquidate property by conducting an estate sale or selling major resources, such as a home, during estate administration, the estate itself could owe income taxes. Once the revenue generated by the estate reaches $600, the estate is likely liable for estate income taxes.
Personal representatives can more effectively protect themselves from legal and financial complications by filing appropriate returns and retaining estate resources as necessary to cover outstanding tax obligations. Working with an estate administration lawyer can help personal representatives fulfill their duties and limit their legal vulnerability during probate proceedings.