Personal representatives (also widely known as executors) who are overseeing the administration of a decedent’s estate have an obligation to manage estate resources. They are also responsible for the financial obligations of the decedent. The personal representative may need to notify creditors, pay outstanding bills and even file tax returns.
Filing a final tax return for the deceased individual is common practice. In some cases, the estate itself might owe taxes. When might an estate incur tax liability?
When the estate is worth millions
Nevada does not collect estate taxes or impose any sort of inheritance tax on heirs or other beneficiaries, but federal estate taxes may apply. If the estate is worth more than the current federal exemption threshold, the personal representative may need to cover estate taxes using the estate’s resources. The current tax exemption threshold is $15 million, and the tax rate that applies could be anywhere from 18% to 40%.
When the personal representative sells assets
An estate plan may include instructions to hold an estate sale. Selling the personal property of the decedent and distributing proceeds among beneficiaries is a common practice. Any sale that generates $600 or more in revenue may create income tax obligations for the estate. Personal representatives have to file a tax return on behalf of the estate and use funds from the sale to cover applicable income taxes.
Mistakes when paying estate taxes and income taxes can lead to direct liability for personal representatives. Working with a probate and estate administration attorney can help personal representatives avoid mistakes that could have significant financial consequences.