Did you know your tax filing obligations may not necessarily end upon your death? When you die, your “estate” becomes a separate taxpaying entity subject to income tax. The person you’ve named in your will to handle your affairs (generally called your Personal Representative or Executor) is responsible for making sure that any required tax filings are prepared and filed, and any taxes due get paid.
Your final individual income tax return will include income through the date of your death. Post-death income from assets for which you haven’t named a designated beneficiary must be reported on what’s called a “fiduciary” income tax return filed by your estate, until those assets get distributed to your heirs. Post-death income on assets for which you have named a designated beneficiary gets reported on the tax return of the designated beneficiary. For example, if you have a brokerage account and you’ve named your daughter as beneficiary of the account upon your death (by filing the proper designated beneficiary forms with the broker), your daughter becomes the owner of that brokerage account upon your death, and all post-death income gets reported on your daughter’s income tax return. If you don’t have a designated beneficiary named on the account, the account becomes the property of your estate, and the income gets reported on the “fiduciary” income tax return filed for your estate until the assets in the account are distributed to your heirs.
Proper planning can minimize the tax filings required upon your death. It is not uncommon to have several tax returns required after death including; the final individual income tax returns, federal and state “estate” tax returns, a gift tax return, fiduciary income tax returns for the estate, and fiduciary income tax returns for any trusts you may have created.
We highly recommend you make your accountant and attorney part of your team when it comes to your estate planning. The estate tax law is continually changing and can have a significant impact on how your assets are taxed and distributed to your heirs upon your death.
