Probate: Estate Tax - Filing Returns
Probate and state and federal tax returns.
Probate and Estate Tax Returns If you are the Personal Representative or an estate, you will need to work with an accountant to file the last tax return (1040) for the deceased person whose estate you are administering. This tax return should be filed by April 15th of the year following the death and should be marked at the top Deceased Final Return. You will need to gather and collect the financial records and 1099s that the deceased receives to complete this process. Ideally, you can work with the accountant who handled the deceased’s previous tax returns, but if not the accountant you hire will most likely need a copy of the deceased’s tax return form the previous year and all the regular documents to complete the Final Return. Its a good idea to start a file right away and then as you come across pertinent documents or as they come in the mail you can place them in the file for the accountant.
As a personal representative you may also have to file an estate tax return (IRS form1041). A deceased person’s estate is a separate legal entity for federal income tax purposes. You will need to acquire a federal identification number for the estate.
There are two different scenarios in which an estate must file a return with the federal government. If the estate is over the federal estate tax exemption amount of $5.43 million for deaths in 2015 the estate must file a return. If the estate does not fall into this category, the personal representative may still have to file a tax return for the estate.
Does the Estate need to file a tax return?
This is a common question that I get from my Probate clients. The Personal Representative must file a federal income tax return (Form 1041) if the estate has either:
- Gross income for the tax year of $600 or more
- A beneficiary who is a nonresident alien
What constitutes income in regards to the Estate?
Common examples are rents from real estate, monetary benefits received by the person after death, or interest on an estate bank account. Your accountant should be able to tell you whether income generated after the person’s death should go on their personal 1040 for that year or be considered estate income, requiring the filing of the federal estate return 1041. It is important to keep accurate records and present these to the accountant for a through review
If the personal representative promptly distributes all the estate assets to the people who inherit them, the estate may not have income, and the personal representative may not need to file an income tax return for it but its a good idea to discuss this with the accountant who prepares the final return to ensure that all income is accounted for.
Intestate Rules for Non-Married Individuals In Colorado
Singles (aka non-married individuals) often procrastinate about estate planning. If you are one of my friends or colleagues who fall into this category here is a brief summary of who will inherit your assets should something happen to you. By taking the mystery out of what happens I am hoping to alleviate some of the worry and maybe even encourage some proactivity in this regard.
Colorado's intestacy rules are similar to the rules found in other states but don't provide for inheritances by remote relatives, such as distant cousins. State laws set the inheritance rules for the estate of a person who died intestate; however, these rules don't take the financial needs of his heirs into consideration.
If a non-married individual dies with children, their children inherit their estate. If a non-married individual dies with no children then surviving parents inherit his/her entire estate. If both parents are dead, the estate goes to the parents' surviving descendants: for example, the siblings of the deceased person. Surviving grandparents may inherit the estate if the parents have no surviving descendants. If both grandparents are dead, their surviving descendants inherit the estate. In cases where the deceased person's parents and grandparents left no surviving descendants, the estate may go to the state of Colorado.
Colorado's laws allow inheritances by a birth parent who adopted out the deceased person or any birth children the deceased person put up for adoption, but only to prevent the estate from going to Colorado because of a lack of heirs.
Not all property is subject to Colorado intestacy rules, some of it if properly designated/titled can pass out of these intestate rules. Money from retirement accounts, such as 401(k) accounts, and insurance plans go to the person named as the beneficiary on the account or plan paperwork. Property owned with another person as a joint tenant —the family home, for example—belongs to the surviving owner. Any property transferred to a living trust belongs to the trust and isn't subject to intestacy laws. Bank accounts that have another person designated to receive the funds if the account holder dies—known as "payable on death" accounts—pass to that designated person.