Serving as the executor or administrator of an estate means settling all of the obligations of the deceased person. It also means distributing their assets in compliance with their wishes. Some people become so fixated on that second requirement that they don’t fully fulfill the first and most critical obligation.
As executor, you could potentially have financial or legal culpability if you don’t fulfill all of the legal and financial obligations of the deceased person before distributing property to other family members. Taxes are one of the most important obligations an individual has. That means that taxes are also crucial to the administration of an estate. What taxes do you have a responsibility to handle as an executor?
You will have to file at least one tax return
When someone dies, they need to have a final tax return filed on their behalf even if their source of income was not taxable. That final return helps resolve any outstanding tax issues that the deceased did not resolve while still alive.
Depending on the circumstances, you may also need to file an income tax return for the estate itself, usually within nine months of the date of death. In situations where you liquidate assets as executor, make investments or sell real estate, you may have to file a tax return on behalf of the estate itself addressing those financial transactions.
In a very large estate, you may also have to handle estate taxes
If the estate is worth several million dollars, there may be estate taxes to consider as well. New York does have a state-level estate tax, and there is also a federal estate tax. These taxes stem from the value of the estate itself.
If you don’t file the right paperwork and pay all tax obligations in full, there could be issues in the future. For example, you could be held responsible for the unpaid taxes if you distributed valuable property from the estate without paying them.
Verifying tax obligations and all other debts before you attempt to distribute property from the estate will protect you from making this potentially expensive mistake. The better you understand your obligations as an executor, the better your chances of completing the process without any mistakes or complications.