Bob dies, leaving a will that names his old friend TRS as his independent executor. Deeply honored, TRS files the will for probate and is appointed as an independent executor of Bob’s probate estate.
TRS proceeds to gather estate assets and pay estate debts and is generally having a pretty good time. He starts thinking that this independent executor job is a piece of cake.
And then someone asks him if he has filed IRS forms 709, 706 and 1041.
As Independent Executor, TRS has to file up to 4 different federal tax returns. If, heaven forbid, Bob owned real property in another state, then TRS may also have to file one or more state tax returns.
On the federal front, the tax filings are Bob’s final federal income tax return (Form 1040), Bob’s final gift tax return (Form 709), Bob’s federal estate and generation-skipping tax return (Form 706), and the Estate’s fiduciary income tax return (Form 1041). He should also file a Form 56 notifying the IRS of his appointment.
On the state side, Texas doesn’t have an estate tax, and doesn’t require a decedent tax return. But a lot of other states aren’t as enlightened. TRS has a duty to find out if there is a state tax return due, and then make sure it is filed.
There is also a pesky issue of revocable trusts. A revocable trust may elect to be considered as part of an estate for fiduciary income tax purposes (see I.R.C. Section 645).
Back to the federal returns…
Every estate has to file a final income tax return and a fiduciary income tax return. Sometimes those are simple. Sometimes they are very, very complicated.
TRS may not have to file a final gift tax return if there weren’t any unreported taxable gifts. The estate tax return (the Form 706), however, is one that may need to be filed even if the probate estate is under the exclusion amount. That’s because, if Bob was married when he died, his widow can receive credit for his unused exclusion amount on her own estate tax return.
TRS needs to hire a CPA to help him on these tax returns. This is not a time for amateur hour.
Hammerle Finley Law Firm. Give us a call. We can help.
Want to receive our monthly email newsletter or book one of our attorneys for a speaking engagement? Email LegalTalkTexas@Hammerle.com and let us know how we can help.
The information contained in this article is general information only and does not constitute legal advice.