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3 types of taxes often due during estate administration

On Behalf of | Dec 10, 2023 | Probate

The process of estate administration in Nevada can be relatively intense. The decedent may have named an executor in their documents, or the probate courts may need to assign a personal representative to manage the estate. That individual must then review the estate plan, uphold someone’s last wishes and comply with all probate requirements. The personal representative must send written notice to parties with an interest in the estate and typically also needs to settle someone’s financial obligations, such as their personal debts.

There could also be taxes that require payment before beneficiaries receive assets from the estate. The following taxes might potentially diminish the value of a Nevada estate and must be addressed before distributions can be made.

Estate taxes

There are taxes sometimes imposed on large estates. Individuals who die with millions of dollars of property could pass less to their beneficiaries than people realize because of estate taxes. Nevada technically does not collect an estate tax, but the federal government does. The federal exemption for estate taxes changes annually. In 2024, the states worth more than $13,610,000 will be subject to federal estate taxes.

Income taxes

People sometimes die with outstanding income tax obligations. Perhaps they work as self-employed independent contractors. Maybe their employer did not withhold enough in taxes from their paycheck. The personal representative of the estate will typically need to file a final tax return on behalf of the deceased and use estate property to cover any remaining tax obligations. The estate itself might eventually owe income taxes. If the personal representative sells assets from the estate and generates $600 in profits or more, they must file an income tax return on behalf of the estate and retain enough funds from the sale to cover those taxes.

Capital gains taxes

Technically, the responsibility to pay capital gains taxes usually falls to individual beneficiaries. If someone inherits property from the estate and sells those resources, they may have to pay capital gains taxes on the revenue received from the sale. Ideally, a testator will arrange to transfer property in a structured manner to minimize the likelihood of beneficiaries becoming responsible for capital gains taxes. They can also plan to reduce estate taxes.

The opportunity to minimize these taxes typically exists during the estate planning process. Yet, knowing what taxes diminish the total value of an estate can benefit those overseeing estate administration or expecting an inheritance because they can adjust their expectations accordingly.