Today TaxMama hears from Cheryl in Kansas who wants to know, “Do you have to file an estate return when the whole estate is going to be less than $200,000? There are 3 heirs (1 in Kansas and 2 in Texas). The assets include the funds from the sale of the house (about $145,000) and some savings and annuities (about $20,000). I think I still have to file mom’s personal tax return for 2006 but did not know about an estate (1041) return.”
Hi Cheryl
It’s bad enough that your mother died, now you have to go through tax hell, sorting it all out.
OK, here’s what you do. In the most simplistic terms possible.
1) The time period for Mom’s personal tax return (Form 1040) runs from January 1 of the year she died, until the date of death that same year.
2) Mom’s decedent estate tax return (Form 1041) starts the day after she dies until either December 31st of that year, or until everything is resolved, if it takes less than 12 months. That will give you a ‘fiscal year’.
3) Of course, if it takes more than 12 months to sell everything and distribute it, you’ll be filing those Form 1041s for several years.
4) You’re going to issue K-1s to each heir from that Form 1041 report. Whether the heirs or the decedent’s estate pays tax on the earnings on the savings or annuities depends on the instructions in the will or the trust. I am never positive about annuities – it’s always something I consult my experts on, after getting the details of the annuity contract.
Get a good, local tax professional involved so everything is done properly and none of this will come back to haunt you.
And make sure you look for all those pesky little things, like any credit card policies or small policies that might cover her…or check with Social Security to see if you’re entitled to the $250
death benefit for burial. Remember to stop those Social Security checks, if they are coming.
The filings are fairly simple to someone who understands estates and trust tax returns. But there’s a LOT of room for confusion if you’re not experienced.
Just in case you want some reading material, read IRS Publication 559,
Survivors, Executors, and Administrators https://www.irs.gov/publications/p559/index.html
And remember, you can find answers to tax questions about death and all kinds of tax issues, free. Where? Where else? At TaxMama.com
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