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Addressing tax issues during the estate administration process

On Behalf of | Jul 29, 2024 | Wills, Estates & Probate

You are probably familiar with the basic idea behind estate administration or probate that must be completed after someone passes away. The executor, or person in charge of administering the estate, collects the assets and distributes them to heirs.

But one issue that can be easy to overlook is taxes.

There are various types of estate taxes that may be owed on an estate, including federal or state estate taxes, inheritance taxes or gift taxes. However, most Tennessee estates are not impacted by these.

Tennessee does not have an estate or inheritance tax

Additionally, although you must adhere to the federal estate tax requirements, this only applies to estates above a certain value.

The exact value typically varies each year, but usually only estates valued at several million dollars or more must file a federal estate tax return.

However, most estates are impacted by income taxes. The estate executor is responsible for filing a final federal income tax return for the deceased. Any debts owed pursuant to this return must be paid out of estate funds.

Additionally, if the estate continues to earn income on property or investments while it is being settled, an income tax return may need to be filed on these and taxes paid.

The importance of doing it right

Handling taxes as part of the estate administration process might seem like a minor issue, since most executors are focused on distributing the assets to the proper heirs. The importance of filing the proper taxes and paying any owed tax debt should not be overlooked.

Failing to file taxes or pay owed tax debt can result in negative consequences to heirs, since estate assets might need to be used to pay the tax debt. If you are an estate executor, handling the tax issues can be confusing or complex. You may need to seek a professional for help.