The probate courts oversee estate administration. They help ensure that personal representatives follow an estate plan or intestate succession laws. They provide opportunities for interested parties to make claims against an estate to secure repayment.
Tax authorities are among the various parties that may have an interest in estate resources. Personal representatives administering estates and those waiting to receive an inheritance from an estate may benefit from understanding the tax obligations that might arise during estate administration.
What taxes influence the probate process?
Income tax liabilities
Filing a final income tax return is an important part of estate administration. Even if the person who died had not worked in years, a final return helps reconcile any outstanding income tax obligations they may owe.
Personal representatives may need to use the state resources to pay the income tax debts of the decedent. The estate could also owe income taxes if administration requires the sale of assets. Sales that result in $600 or more in revenue could lead to income tax liability for the estate.
Estate tax obligations
Federal estate taxes apply in every state, even those that don’t impose a state-level estate tax. Those with large estates with a total value of $13.99 million or more may be subject to estate taxes. Estate taxes can impose a hefty financial obligation, often consuming anywhere from 18 to 40% of the total value of the estate.
Understanding the impact taxes can have on estate administration can help people know what to expect when managing an estate or waiting to receive an inheritance. Taxes can often consume a large portion of an estate’s value, and take priority over the final distribution of assets to beneficiaries or heirs.