Settling an estate after someone's death can be a difficult process. In addition to dealing with the emotions of the moment, an executor most locate all of the relevant financial information of the decedent and file appropriate documents within a relatively short time period.
Identify the executor or administrator. If someone dies with a will or trust, that document will name the executor of the estate. If a person dies intestate, or without a will, the heirs of the estate must nominate an administrator and submit the nomination to the county probate court for approval.
Open an estate current account. You will need this account to collect income due to the decedent after death and to make distributions, such as for taxes or to heirs.
Notify creditors and close accounts. After establishing the estate current account, you should notify creditors of the death, pay off all debts that the decedent owes, and close those accounts.
File a tax return for the decedent, if necessary. The IRS doesn't require a tax return if income is below a specified level, based on the taxpayer's age, filing status, and the type of income received. This amount changes annually. If a return is required, file the return as if you were the decedent, including all of his income and deductions. Write the word "deceased" after the decedent's name in the name and address section. Write in the date of death of the decedent across the top of the return.
File an income tax return for the estate, if necessary. Once an individual dies, his estate becomes a unique taxpayer for tax purposes. Thus, any income that arrives in the name of the decedent after his death belongs to the estate. Except for the use of Form 1041, "U.S. Income Tax Return for Estates and Trusts," this step is exactly the same as filing the final Form 1040 for the decedent.
Complete an estate tax return, if needed. An estate tax return is different from an estate's income tax return and usually only affects estates of considerable size. As of 2009, estates in excess of £2,275,000 were required to file this return, with amounts above that exemption level taxed at estate tax rates. In 2010 the estate tax was temporarily repealed.
File state tax returns, if necessary. Usually, state income tax returns and possibly even state estate tax returns may have to be filed for the decedent. As each state has different requirements, and some do not even collect state income taxes, you should contact your state revenue department for the appropriate procedures.
Distribute property. In accordance with the will or trust, you should disperse assets to the beneficiaries as the decedent intended. If there is no will, you must follow state intestacy laws to determine who is entitled to the property of the deceased.
Finalise the closure of the estate. After you file the estate's federal tax return, you will receive an estate tax closing letter from the IRS. File this letter with your state tax authority, which will then issue its own estate tax closing letter, confirming the closure of the estate. If the estate went through probate, you will need the assent of the beneficiaries that the estate is distributed. Submit this to the probate court to receive final approval of the estate closure.
Things you need
- Decedent financial information
- Will or trust