What federal taxes must be paid during the probate process?

The probate process is intended to settle the estate of an individual who has recently died. It is overseen by a court and identifies and collects all of the testator’s assets and tries to distribute them to any beneficiaries that have been named. But probate must also identify any debts that the testator had and try to settle them as well. But can the probate process generate any circumstances that involve paying federal taxes?

Probate usually creates two primary tax situations that must be settled. The first is that the death of the testator firmly establishes the last year that he or she needs to file their federal income tax. The second is that their death creates a new tax identity, the testator’s estate. Depending on the individual’s estate, the executor or personal representative of the testator may need to complete and send in several tax forms including the testator’s final Federal 1040. The executor may also need to complete forms such as Federal Form 1041, which is the federal income tax returns for the estate as well as Form 709 which explains any gifts made by the testator before their death.

The executor must also pay any amount of taxes, both current and outstanding, that the testator owed to the IRS. These taxes can be paid using the assets of the estate and not the executor’s personal funds. However, in certain situations, the executor may be personally liable for this debt if it is not paid appropriately.

Settling an estate’s tax responsibilities with the IRS can be overwhelming. However, any Florida resident who is developing an estate plan may want to speak to an estate planning attorney in order to find out if there are ways to reduce the estate’s tax burden.

Source: floridabar.org, “Probate in Florida pamphlet“, Accessed Jan. 12, 2016