Filing Requirements

Estate executors must file tax returns, even though the estate may not owe taxes. The IRS requires estate executors to file final IRS Form 1040 tax returns on the decedent taxpayer’s behalf, Form 1041 for the estate’s fiduciary tax returns and copies of the death certificate. The IRS also requires executors send copies of probate documents including wills, revocable and irrevocable trusts, valuations and any appraisals. Estates who have obtained probate court rulings determining the property allocations pursuant to the taxpayer’s wills or the state’s intestacy rules must provide the IRS with copies of those court orders.

Estate Exclusion Amount

Taxpayers appoint executors by will or trust to administer the estate property to beneficiaries. Courts appoint administrators when taxpayers die without a will naming a specific individual executor (intestate). Once appointed, both executors and administrators must file Form 56 or Notice of Fiduciary Relationship with the IRS. Estate executors and administrators must perform a general estate accounting to determine the estate’s total fair market value using the tax code’s valuation rules. The IRS will send the estate a tax identification number for filing purposes. For 2010, the current exclusion amount for estate taxes is $5 million. Thus, when a decedent’s taxable property is less than $5 million, the estate may not owe estate taxes but must still file necessary returns and paperwork.

Filing Form 706

Executors who are responsible for administering property allocations of an estate exceeding the $5 million threshold must file income paperwork. The IRS requires executors to file Form 706 or Estate Tax Return, and if the executor decides to use the federal carryover allowances, then he must file Form 8939. If the executor files the carryover form, then she must send estate beneficiaries a written statement of the information within the 8939 form. This provides notice to beneficiaries that they may owe taxes based on the filing.

IRS Recommendations

Since the IRS can assess estate taxes for at least three years after the estate files tax returns, the IRS recommends that estates valued at over $1 million find professional tax assistance to guide them and help them understand the intricacies of estate tax laws. Estate executors and administrators may file a written request using form 4810 with the IRS for a prompt tax assessment. This allows executors to file their personal liability discharge forms with the IRS to absolve them from personal liability for failing to pay estate taxes.

Considerations

Since tax laws can frequently change, you should not use this information as a substitute for legal or tax advice. Seek advice through a certified accountant or tax attorney licensed to practice law in your jurisdiction.