Final Tax Returns & Estate Tax Issues


As the personal representative of the Estate in Texas, the Executor or Administrator is required to, among other things, prepare and file all of the tax returns due both for the Decedent and for the Estate. While most people find tax issues daunting during their lifetimes, the tax issues involved at the time of someone’s death can be frightening. Following is a discussion of the types of tax issues that you may be facing in the probate process.

The Decedent’s Final Personal Income Tax Return


The Executor has the responsibility of filing the Decedent’s final income tax return for the year in which he or she died. As probably makes sense, the tax return covers the period from January 1 through the date of death of the year that he died. If the Decedent was married at the time of death and both the Decedent and spouse filed joint tax returns, then the Executor and the surviving spouse will jointly file the tax return, and both will sign it. Any income generated by the Decedent after the date of death will be reported on the estate’s income tax return.

The Estate Income Tax Return


After someone dies, their estate can still generate income. For instance, if the Decedent owned bank accounts and stocks that generate dividends and interest, the estate may receive those dividends and interest during the period of the probate administration. Likewise, the estate might receive the Decedent’s final paycheck from his employment.

Reporting Income After Death


Any income that comes into the estate after the date of death must be reported as income by the estate rather than by the Decedent. This income will be reported on a separate tax return, and it is important that your attorney understand the coordination of the estate income tax rules with the personal income tax issues of the beneficiaries and heirs of the estate.

Reducing Taxes & When the Estate Income Tax Return Must Be Filed


Because the estate is subject to higher tax rates than individuals, it is possible to coordinate the distribution of the estate’s income to the beneficiaries so that the beneficiaries pay the tax, rather than the estate. This issue can become very complex, but the Executor must understand, at a minimum, that they are required to ensure that the estate income tax return is filed prior to the conclusion of the probate administration.

The Estate Tax Return


The estate tax return differs from the estate income tax return. The estate tax is a tax imposed on the value of the assets owned by a person at the time of their death. While Congress allows an exemption from these estate taxes, any assets owned by the Decedent that exceed the value of the exemption will be taxed at very high rates.

When is an Estate Tax Return Due?


It is the Executor’s responsibility to ensure that the Estate Tax Return is filed within 9 months after the Decedent’s date of death. In estates that are large enough to be concerned with the estate tax, it will be absolutely necessary to work closely with a competent attorney who understands these issues. They can be very complex and have very strict consequences if they are not addressed appropriately.

Discuss Estate Tax Issues with an Experienced Attorney


Ford+Bergner partner Don Ford, a leader among probate law attorneys in Texas, began his legal career as a tax attorney and has extensive experience in estate tax issues.  If you want to discuss preparing and filing final income tax returns and estate tax returns with an attorney who understands the issues involved, contact Ford + Bergner now