Death and Taxes: What to Know After the Death of a Loved One

Why It Matters:

  • State and income taxes need to be paid to settle an estate after death.
  • It’s up to the executor of the estate to make sure this gets done.
  • The personal income tax return covers the last year of the person’s life.

Everplans tkc.profilePicture Written by: Everplans
Sept. 30, 2017

4 Min readClock Icon

Just because you’re dead doesn’t mean you don’t have to pay taxes.

After a death, it’s often necessary to file state and/or federal incomes tax returns: The personal income tax return(Form 1040) covers the last year of the deceased person's life, and a federal estate income tax return (Form 1041) covers the estate.

When are these taxes due?

The same time as for everyone else in America: April 15 (unless it falls on a weekend or something unusual, and then you get a little extra time). The executor is responsible for paying these taxes, which cover the deceased’s final year of life. If the person died close to Tax Day, you may even be able to get an extension, allowing you to get it out of the way sooner rather than later. If you're interested in an extension, talk to an accountant or financial professional, who can help navigate the tricky and often confusing tax landscape. Even if you’re not interested in an extension, you should still speak with a professional. While this may be a new situation for you, it’s something they deal with all the time. (Or at least they should if they expect you to hire them.)

How much income tax will I have to pay?

Since everyone's estate is different, it’s hard to predict what you will owe. There are just too many factors at play – for example, was it a younger person at the height of earning potential, or someone who’s been living off of retirement savings and Social Security for the past decade.

There are different taxes that must be paid on income the deceased received during the year of death, as well as income, earnings, or savings that the estate has accrued after the death. There are also specific rules for different types of investments or assets, and different ways survivors may choose to report deductions and file a final tax return. Once again, if you’re the executor or administrator of an estate, talk with a pro to make sense of the situation.

What’s the deal with federal estate tax?

It’s basically a threshold on which an estate either does or doesn’t have to pay taxes. The federal estate tax rate is at 40% for the year 2017, with an exemption of $5.49 million. This means that if the estate is valued at less than $5.49 million, the estate doesn’t have to pay any federal taxes on those assets, and heirs will receive those assets in their entirety.

If the estate is valued at more than $5.49 million, all assets above $5.49 million will be taxed at 40%, meaning that heirs will get the $5.49 million tax-free and will get 60% of all assets above $5.49 million. That said, the federal estate tax might not be the only tax that needs to be paid. Depending on where you live, or where the deceased lived up until death, there could be an additional estate or inheritance taxes due. (See State-By-State Estate and Inheritance Tax Rates for more.)

Getting some help

Filing taxes on behalf of an estate can be incredibly complicated, confusing, and frustrating. It might be annoying how we keep repeating ourselves, but hiring an accountant can make this process much easier. If you already have an accountant, or someone who helps prepare your taxes, give them a call. If you don’t, ask friends and family for referrals.

If you do your own taxes, this might be the year you enlist help from an actual human. Before you think we’re trying to get you to hire someone for the sake of it, it’s not just the deceased’s taxes that matter. If you inherited any of the deceased’s property, your own taxes may be a bit more complicated and require a little extra scrutiny and effort.

Once taxes have been paid, and the estate's final bills, dues, and expenses are all squared away, the executor or administrator of the estate can start to distribute assets as laid out in the will.

This article is provided by Everplans — a life and legacy planning company dedicated to transforming the way people get their families organized. For more information, visit: everplans.com

Neither Transamerica nor its agents or representatives may provide tax, investment, or legal advice. Anyone to whom this material is promoted, marketed, or recommended should consult with and rely on their own independent tax and legal advisors and financial professional regarding their particular situation and the concepts presented herein.

Things to Consider:

  • Even though it’s an extremely emotional time after a death, taxes still need to be paid on behalf of a deceased person’s estate.
  • You might love DIY projects, but you should really hire an accountant or financial professional to avoid costly mistakes.
  • Income tax for the dead is similar to that of the living, and if you don’t pay it on time there can be penalties.
  • As of 2017, federal estate taxes shouldn’t be a concern if the deceased had less than $5.49 million in total assets.

33017_KPBPP0817

PEOPLE ARE DISCUSSING WEALTH + HEALTH

Join the Discussion

Tags in this article

Assets Budget Financial Planning Family Beneficiary

More Discipline

WANT TO BE IN THE KNOW ABOUT THE LATEST ARTICLES ON WEALTH & HEALTH?

SUBSCRIBE

Thanks for subscribing!

Your subscription wasn't successful. Please try again later.

Please enter a valid email address.

Please enter a valid first name.

Please enter a valid last name.