Does an executor have to pay taxes on behalf of the deceased?

| Jun 11, 2020 | Estate And Probate Law |

Those entrusted with the management or administration of someone’s estate have many obligations that they must fulfill in their role. Reviewing the last will or estate plan and providing the necessary documentation to the probate courts is one such obligation.

Handling outstanding financial matters on behalf of the deceased is another. Among the myriad financial needs that people have in both life and death, taxes are a constant. Does the executor of an estate have an obligation to manage taxes on behalf of the deceased?

An executor typically files a final tax return

Even if someone passes away while not earning any income, it is still necessary for the executor to file a final tax return with the IRS. Failing to do so could have implications for the assets in the estate and might cause legal complications for the executor and beneficiaries in the future.

The estate will also have to pay an inheritance tax to the state

Pennsylvania does not have the same kind of estate tax as other states do. In many places, estate taxes only apply to estates words millions of dollars, and the same is true for federal estate taxes. In Pennsylvania, there is no minimum value of the estate for taxation purposes because the state does not tax the estate itself but rather the inheritance.

The amount of taxes owed will depend on when the executor pays the taxes and the relationship of individuals receiving certain assets. The closer the relationship, the lower the tax amount. Also, filing sooner rather than later can reduce the tax burden because of an early payment reduction. Filing late can cost more because penalties can start accruing after nine months.

There may be real estate taxes to handle, too

When someone leaves behind real estate, the executor of the estate must mean is the property until the transfer of the property to the next owner is complete. Regardless of whether the property passes directly to an heir or the executor intends to sell the property, if real estate taxes come due, they will need to get paid in order for any transfer to occur.

Managing taxes may not be fun, but it is a critical part of estate administration. The right help can ensure that an executor completes all of their duties and potentially minimizes the tax obligations for the estate.