Probate proceedings and estate administration can be relatively demanding. The personal representative who oversees the probate process has many different responsibilities. They must secure and properly manage estate assets. They must attend probate court hearings and keep clear records of their actions. They also need to communicate with beneficiaries and creditors.
In addition to distributing inheritances to individuals, personal representatives must also fulfill all outstanding financial obligations. They may have to address several types of taxes. The following are the most common tax obligations that arise during estate administration.
The testator’s final income taxes
Frequently, there may be an outstanding income tax obligation owed by the decedent. The personal representative of their estate typically needs to file an income tax return on behalf of the deceased individual. This is true even if the decedent had no significant income in the years prior to their passing. Paying any amount due is a key obligation that the personal representative may need to fulfill before they begin distributing resources to beneficiaries.
Income taxes for the estate
Frequently, people leave instructions for the sale of certain property after their passing. People recognize that their loved ones may not want their collectible figurines or housewares. By holding an estate sale, they can convert unwanted property into liquid capital that beneficiaries can inherit. If an estate sale generates $600 or more in proceeds, the personal representative has to file an income tax return on behalf of the estate.
Estate taxes
Colorado does not collect an estate tax at the state level. If the estate is large enough, then federal estate taxes still apply. If the estate contains property with a total value of $13.99 million or more, then the personal representative may have to use estate resources to cover federal state taxes. The tax rate can be anywhere from 18 to 40% depending on the total value of the estate. Filing necessary income tax returns and retaining resources to cover tax obligations are both important aspects of the probate process.
Identifying potential financial obligations early can help personal representatives avoid estate administration errors that could have significant financial implications. Those overseeing estate administration often require guidance to ensure that they fulfill all of their responsibilities without any mistakes that could inspire financial liability.