One of an executor’s or personal representative’s most important jobs, at least in the eyes of the state, is to settle things with the tax guys.
The short answer is that, excluding federal student loan debts, tax burdens don’t magically puff into a cloud of monetary magic and disappear — they are still owed by the “estate” of the deceased, which means you have to file a tax return on their behalf.
Estate is just a term referring to everything owned by an individual, including tangible and intangible property.
And paying all taxes prevents any surprise bills cropping up later on when you thought your inheritance was all settled.
Some key takeaways:
- Executors often need to file both a final individual tax return and an estate tax return, including any estate or inheritance taxes (if applicable).
- If the estate has more than $600 in gross annual income, then you must file IRS Form 1041.
- You will often need your letters testamentary or letters of administration via the probate court to access sensitive accounts & tax information.
- You may need to file IRS Form 4506-T to get historical tax records.
- Write “deceased” next to the name on tax forms.
- If you are a surviving spouse, you can still file a joint return for the last year they were alive.
- The deceased’s income counts from January 1st until the day before they pass.
- Try and locate all Form 1040s, W-2s, and 1099s before beginning. Treat it like you’re doing your own taxes. .
*Note — This advice is generalized and should not be considered specific financial or tax advice. If you have specific questions, it’s probably best to hire an attorney or tax specialist.
What Happens if a Deceased Person Owes Taxes?
Executors, personal representatives, administrators, or any other synonyms states use to talk about the person who has been put in charge of an estate usually file both a personal tax return for the person through the date of death and for the estate itself before it is dissolved.
In general, the final individual income tax return of a decedent is prepared and filed in the same manner as when they were alive.
According to the IRS:
All income up to the date of death must be reported and all credits and deductions to which the decedent is entitled may be claimed. File the return using Form 1040 or 1040-SR or, if the decedent qualifies, one of the simpler forms in the 1040 series (Forms 1040 or 1040-SR, A).
You should also make sure that they don’t owe from previous years, and you can ask for a tax transcription from the IRS with Form 4506-T, assuming you’ve already been appointed the executor of estate.
Estate taxes are typically filed toward the end of probate but before inheritances are distributed. This is often paid out of an estate account opened by the executor to manage cash during estate settlement.
Someone’s estate can, and likely will, be repeatedly contacted and pursued by the IRS until whatever is owed is settled. The current statute allows them to knock on your door for at least 10 years to collect their money, sometimes longer if they file an extension.
Atticus Advice: If the person who passed is owed a refund of any individual income tax (Form 1040), you may claim that refund using IRS Form 1310, Statement of a Person Claiming Refund Due a Deceased Taxpayer.
Who Has to Pay Taxes For the Deceased?
The estate pays the taxes — it doesn’t come out of someone else’s bank accounts.
But the person who pays taxes on behalf of the deceased? That would be whomever has been named the executor of the estate (or personal representative) in the will.
At least most of the time. In larger estates you may find that an estate lawyer has been hired in advance to help out.
If there wasn’t a will, then a relative or spouse typically “steps up” to be appointed by the court after “petitioning the court” to begin probate.
Chosen executors can refuse to serve with a form, and if no one wants to be the executor, courts will typically appoint someone based on next of kin precedent / capability.
If all this language feels like you're stumbling through a foggy mess of words you don’t recognize, back up and read this Probate 101 Guide, it will put everything into perspective and make all of this MUCH easier.
Do Beneficiaries Have to Pay For Debts Left By the Deceased?
Unless you owned those debts with that person, no. Beneficiaries are not automatically responsible for someone’s debt.
That was their own mess, so to speak.
Now, there are some exceptions like states that have community property laws, which is when anything bought during a marriage is technically owned by both spouses, or in some states medical debt is transferred to a spouse when someone passes, but generally speaking, no.
If you are unsure and fear you may be responsible for a lot of money, then this is when you stop scouring the internet and consult with an attorney, unfortunately.
Atticus Advice: Assets placed in a trust, life insurance plan, TOD account, or other “non-probate assets” can often be exempt from having to pay off an estate’s debts. This is SUPER important and can sometimes be the difference between someone getting an inheritance, and someone not.
How to get access to the deceased’s tax information and other sensitive accounts
Early on in the probate process, after an executor or personal representative is appointed, they’ll receive their letters testamentary or letters administration. This is just a document from a judge that says, “Hey everybody. This person is settling an estate so give them what they need.”
This is what gets you into bank accounts, social media accounts, and… IRS records. For the IRS, you’ll also need things like their name, address used in recent tax filings, SSN, and a copy of the death certificate.
Are debts forgiven at death?
The only thing equally certain to dying in this life is paying taxes, so no.
Debts, excluding federal student loans, have to be paid from whatever that person owed even after they die.
Think of it like a bunch of squirrels waiting to raid a bear’s den full of berries. When the bear passes, the cubs don’t get first dibs, the squirrels do.
(that’s enough analogies for today)
Taxes are just part of the “debt” an estate owes. You also need to file notice to creditors to officially announce that the person has passed. This starts a clock for people to come collect on their debt, and if they don’t do it (and you’ve properly filed notice), then they forfeit their right to that money.
What happens if you don't file taxes for a deceased person?
So what if you just say, nah?
Well a few things could happen:
- The IRS could put a lien on the estate and require you pay them before making any other significant financial movements, such as paying off other debts. Some expenses like funerals may be exempt but it gets tricky.
- The probate court could fine you or remove you as executor or personal representative or not fulfilling your duties to the state and beneficiaries
When do beneficiaries or relatives nave to pay off debts or taxes?
It all comes back to ownership, if the taxes and debts are only owned by the decedent, then you do the basics, but if you have any of these situations, you may be responsible:
- Co-signed loans
- Join account holders
- Surviving spouses in community property states
- States with inheritance taxes
- Taxable cash received via Income in Respect of a Decedent
- Any other shared liable debt
- Some medical debt + state combinations
What happens if you skip probate?
With some small or non-existent estates, probate can be skipped via an affidavit, which is a good call if you qualify for it.
If you do that, then you should only need to worry about the individual taxes, which include Federal taxes, state taxes, local taxes, self-employment taxes, and business taxes.
Conclusion
Filing an individual tax return and estate tax return, including any estate or inheritance taxes (if applicable), on behalf of the deceased is a typical and required task for executors, executrices, and personal representatives. The specific taxes you are responsible for filing depend on your state, if the estate appreciates, and relate to the date of the person's death.
