Many different types of taxes exist, including estate, sales, property and income taxes, to mention a few of them. The person appointed to the role of executor of someone’s estate has many responsibilities. One of those is to file a fiduciary income tax return.
What is a fiduciary?
Executors are fiduciaries, much like financial planners, estate planning attorneys and any other professional that someone counts on to make sound financial decisions or dole out qualified advice. In the case of an executor, the court entrusts them to act in a financially prudent way that best preserves the value of a decedent’s assets, including accounting for any of their income that comes in after their death.
What type of taxable, postmortem income might a testator receive?
In case you’re wondering what type of income a testator may receive posthumously, it may come from a variety of sources. It may include financial assets such as interest from investment accounts or a deferred salary. Even royalties from intellectual property are possible.
The Internal Revenue Service (IRS) doesn’t distinguish between income earned when an individual was alive versus once they’ve passed away. They tax it both as if the decedent received it while they were still alive. It’s an executor’s responsibility to file a Form 1041 on behalf of any estate or trust that receives postmortem income.
How is post-mortem income taxed?
The IRS taxes estate and trusts income much like they do with individual earnings. Executors can file for a deduction for most any assets they transfer to heirs but must pay taxes on behalf of the testator for any income that remains in the estate or trust. The onus falls on the heirs to pay taxes on any funds or assets that they receive. Exemptions that estates and trusts qualify for are minimal compared to those that individual taxpayers may take.
Filing a fiduciary income tax return
You may find yourself overwhelmed as you learn about the responsibilities that you must carry out as an executor when it’s your first time taking on such a role here in Illinois. An IRS attorney can help you understand what your tax filing obligations are in your role as a fiduciary so that you don’t unnecessarily expose yourself to legal liability as you handle a Frankfort probate case.