By Lane V. Erickson, Pocatello Estate Planning Attorney
Death and taxes may be the only sure things in life according to Benjamin Franklin. The problem is most regular people really don’t know the relationship between death and taxes and how they work together after a person has died. The reality is that there are taxes that could be due and must be paid after a person has died. This is because the IRS is very careful in making sure that it receives all the taxes that are owing by either an individual personally, or their estate after they have died. This can be a complicated and stressful situation for most people. The good news is that our firm has been assisting clients through all issues related to death and taxes for over 70 years. Based on our experience and knowledge, we know that we can help you and your family too!
At the Racine law office we have a team of experienced and knowledgeable Pocatello estate planning attorneys that help our clients work through the issues of death and taxes. These issues include determining whether a probate will be required, helping families navigate all applicable tax issues, and making sure that distributions are made based on the last will and testament of the person who passed away. Our team includes partners Randy Budge and Lane Erickson and attorneys Nate Palmer and Dave Bagley each of whom are knowledgeable and experienced in all aspects of Estate Planning and probate law including taxes.
To be sure, death and taxes can create some complicated situations. However, most Pocatello estate plans only have a few things that need to be considered when it comes to taxes. To help you in knowing whether you and your family should consider speaking with an attorney here are the three types of taxes that you should be aware of because of how they may affect your Pocatello estate planning:
1. Personal Income Taxes for the Person Who DiedIt is our experience that most people do understand that basic income tax filings must still be done for person after they have passed away. However, we often find that most people don’t really know the timing of when these filings must be made. Understanding how this all works can make the process of completing a probate for a loved one after they have passed away much simpler.
To help you understand the process it is important for you to know that the IRS doesn’t really care whether a person lived through an entire year or not. If a person passes away on January 1st of a new year, or December 31st of that same year, the IRS will require an individual tax return to be filed for the person who died. The timing of this filing is the same as it is for people who are alive. All individual tax returns must be filed on or before April 15th of the year following the tax year. In other words, if a person passed away on January 1st, 2017, the tax filing for that individual must be filed on or before April 15th, 2018. The same is true for somebody who passed away in July of 2017 or on December 31st, 2017. if you’ve lived in any portion of a year, your tax filings must be made for that year if you earned income.
To help the IRS understand that the person who you are filing for passed away you should write the word “deceased” and include the decedent’s name and date of death across the top of the tax return. You can also check the “yes” box in the third-party designee area on the bottom of the tax form. This allows the IRS to discuss the tax return with either the personal representative or with the family of the decedent.
2. Income Taxes for the Estate - If it Produces Income After the Person DiedBut wait, there’s more. In addition to filing a tax return for the individual who passed away it’s possible that the Pocatello probate estate may also be required to file a tax return during the year the probate was completed. To be sure, not every estate that is in probate is required to file an income tax filing. The criteria for determining whether a probate estate must file a tax return is if the probate estate earns income during the probate proceedings. The amount of income that must be earned is an annual gross income of $600 or more.
An example will help illustrate this point. Suppose that a person during their life personally owned a rental property. When that person passes away, the rental property will likely continue to produce income off of the rent that is paid by the tenant. If the rent that is paid by the tenant equals a sum of $600 or more for that year, then the estate will be required to file its own individual income tax filing to report all income earned by the estate for that year to the IRS.
In many instances, income-producing properties are owned not by the individual but by corporations, LLCs, or other entities that the decedent may have held an ownership interest in. Because of this, it can sometimes be complicated in determining whether the probate estate itself actually earned any income during the year of the probate proceedings. Additionally, if the probate itself straddles two different years by being started towards the end of one year and carrying over into a new year, there may be a requirement to file two income tax filings for the probate estate. For these reasons, it would be wise to consult with a qualified attorney who can review the probate estate and help you decide whether a tax filing will be required by the probate estate, and if so for what years a filing should be made.
3. The “Death Tax”Yet another area that families and individuals should be aware of when it comes to death and taxes is the actual estate tax, which some people call the “death tax”. In previous decades, the death tax was assessed on nearly every estate that existed because the threshold amount that determine whether a tax was owed was relatively low. However, during the last several decades the amount that an estate must be worth before taxes would be owed has grown. In 2017 an individual’s estate would had to have been larger than $5.4 million before an estate tax would be owed. This meant that a married couple could own nearly $11 million before any estate taxes would be owed. Additionally, President Donald Trump instituted a new tax plan that doubled these amounts beginning in 2018. As a result, the individual estate tax amount will only be applicable if the individual’s estate was greater than $11 million and a couple’s was greater than $22 million.
As a result of these tax changes, most families and individuals don’t need to worry about any advanced estate planning to avoid the death tax. However, it’s possible that these amounts could change in the future. Additionally, if your estate does happen to fall beyond the amounts listed above, some advanced personal estate planning should be considered.
Enlist a Pocatello Estate Planning and Probate Attorney to Help YouOur experienced Estate Planning team of attorneys can help you and your family with your Pocatello estate plan or with your probate needs. Whether you are seeking your own customized Estate Plan or need a Probate for a loved one who has passed, we are available to discuss your options and answer your questions at an initial consultation. Call us toll free at 877.232.6101 or 208.232.6101 for a consultation with the Racine Olson team. You can also email us directly at racine@racinelaw.net. We will answer your questions and will help you solve your Pocatello Estate Planning and Probate problems.