Being named executor of an estate or trustee of a trust can feel like an honor—until you realize how much responsibility comes with the role. You may suddenly find yourself dealing with financial accounts, property, beneficiaries, legal documents and tax filings, often while grieving the loss of someone close to you.
You don’t need to become an expert in probate or tax law. But it helps to understand your responsibilities, know which questions to ask and bring in the right professionals to guide you through the process.
What Is the Difference Between Probate and Estate Tax Administration?
Probate and taxes are related, but they aren’t the same thing. Probate is the legal process of administering an estate. Depending on the circumstances, it can involve validating a will, appointing a personal representative, identifying and managing assets, addressing debts and ultimately distributing property to beneficiaries. An estate attorney generally guides the legal and probate process.
Your CPA handles the related tax and accounting matters. That may include preparing the deceased person’s final individual income tax return, determining whether an estate or trust needs its own income tax return, preparing beneficiary tax reporting and evaluating whether estate tax filings are required. The attorney and CPA often work together throughout the estate administration process.
What Tax Returns May Need to Be Filed After Someone Dies?
One source of confusion is that there may be more than one taxpayer—and more than one tax return. The deceased individual may need a final Form 1040 covering income through the date of death. If an estate or trust receives income after the person’s death, it may also have a separate income tax filing requirement, generally using Form 1041. Beneficiaries may receive Schedule K-1s reporting their share of certain income or other tax items.
Depending on the size and circumstances of the estate, federal or state estate tax returns may also be required. This is why one of the first questions to answer is: Who is the taxpayer, and what returns are actually required?
What Records Should an Executor or Trustee Gather?
Good recordkeeping can make estate and trust administration much easier. Start gathering prior tax returns, bank and investment statements, information about real estate and other significant assets, trust documents, the will, records of income received after death and documentation of expenses paid by the estate or trust.
It’s also important to keep estate or trust transactions separate and well documented. Your attorney and CPA may need different information, so coordinating with both early in the process can help prevent unnecessary work and make it easier to identify missing information before tax deadlines approach.
Does Massachusetts Have Its Own Estate Tax?
Yes, and this is particularly important for Massachusetts families. For deaths occurring in 2023 and thereafter, a Massachusetts estate tax return is generally required when the decedent’s gross estate plus adjusted taxable gifts exceeds $2 million.
That threshold is different from the federal estate tax threshold, and Massachusetts estate tax rules do not automatically change when federal estate tax law changes. An estate can also include more than assets that pass through probate. Certain jointly owned assets, trust assets and life insurance may be included when determining the gross estate even though they pass outside the probate process.
In other words, “It didn’t go through probate” doesn’t necessarily mean “It doesn’t count for estate tax purposes.”
Why Is Professional Coordination So Important?
Estate administration can involve several professionals. An attorney may be handling probate and interpreting the will or trust. A financial advisor may be managing investment assets. Banks, insurance companies and other institutions may have their own requirements. Your CPA’s role is to help make sure the tax pieces fit together with everything else that is happening.
That coordination can be particularly valuable before distributions are made to beneficiaries or the estate or trust is closed. It is much easier to address outstanding tax questions while assets and records are still available than after everything has been distributed.
You Don’t Have to Figure This Out Alone
Serving as an executor, personal representative or trustee carries real responsibility, but it doesn’t mean you need to personally understand every tax form or probate requirement. The important thing is to identify what needs to be done, maintain good records and bring in the appropriate professionals at the right time.
Julie Moran, CPA works with executors, personal representatives, trustees and families in Massachusetts and across the country to provide clear, organized tax support throughout estate and trust administration.
Serving as an executor or trustee and unsure where to begin with the tax responsibilities? Schedule a conversation with Julie. https://calendly.com/julie-juliemorantax/30min
Frequently Asked Questions About Probate, Executors and Estate Taxes
Does my CPA handle probate?
Generally, no. Probate is a legal process, and an estate attorney can advise you about probate requirements and your legal responsibilities. Your CPA handles related tax and accounting matters and can coordinate with your attorney.
Does every estate need to go through probate?
No. Whether probate is required depends on how assets are owned, their value, beneficiary designations, applicable state law and other circumstances. An estate attorney can help determine what probate process, if any, is necessary.
Does every estate need to file an estate tax return?
No. Estate tax filing requirements depend on the value and circumstances of the estate and applicable federal and state rules.
What is the Massachusetts estate tax filing threshold?
For deaths occurring in 2023 and thereafter, Massachusetts generally requires an estate tax return when the gross estate plus adjusted taxable gifts exceeds $2 million.
Can an estate owe income tax even if it doesn’t owe estate tax?
Yes. Estate tax and estate income tax are different. An estate may have income after the person’s death that creates an income tax filing requirement even when no estate tax return is required.
This article provides general educational information and is not intended as individualized tax, accounting or legal advice. Probate and tax requirements vary based on individual circumstances and applicable law. Consult your attorney and tax advisor regarding your specific situation.
