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Filing and paying taxes are important parts of probate

On Behalf of | Jul 9, 2020 | estate administration & probate |

Settling or administering an estate, possibly with the help of the probate court, is a complex process that requires a lot of work and attention to detail. One of the first steps and executor will need to take is to make an inventory of all the assets that the deceased party has left behind, as well as all outstanding debts that they did not repay before they died.

The executor will then need to use assets from the estate to repay all outstanding debts. However, there could be debts that don’t just show up in an invoice in the mail that the executor will need to handle. Taxes are a priority debt that the executor should make sure that they pay. Verifying what taxes someone owed at the time of their death is an important part of estate administration.

You will need to gather income records and file a final tax return

Even if the person who died only received retirement benefits, it’s important that the executor handling their estate files a final tax return with the Internal Revenue Service (IRS). The IRS will update their records to reflect that the individual in question is deceased.

This final filing will also help ensure that there are no outstanding tax debts owed. An executor who fails to pay taxes on behalf of the deceased could wind up legally and financially responsible for those amounts if they distribute assets to the beneficiaries of the estate without paying taxes first.

 County records can give you an idea about property taxes due

Unpaid property taxes can quickly cause a significant issue for estate administration, especially if the executor doesn’t discover it quickly. Unpaid taxes could result in a lien on the property or even a tax sale that could diminish the value of the estate because of the cost associated with redemption. Looking up any amount of taxes currently due or due in the near future will help ensure that you cover those costs with the capital available from the estate.

Will the estate itself be subject to taxes?

The state of Indiana does not tax an estate, but rather the inheritance received by individuals. You will only have to worry about those taxes if you receive assets from the estate. As for estate taxes, the cutoff for federal estate taxes is more than 11 million dollars. Only those with very large estates will typically have to worry about estate taxes. However, real estate taxes and income taxes can absolutely impact even small estates.