Overview

• Typically, decedents who leave written wills appoint estate executors or administrators to oversee their distributions. According to state laws, probate courts appoint personal representatives to administer a decedent's estate if he does not leave a written will appointing a representative. Estate administrators, personal representatives and executors must first perform an initial accounting of an estate's assets, including all personal property, investment accounts, cash, real property, the total value of trust proceeds and life insurance policies. Estate representatives must apply for a federal employment identification number from the IRS and file a final tax return on the decedent's behalf and an estate tax return.
  
  

Estate Tax Laws

• The IRS recommends that representatives of estates obtain professional assistance from an attorney or accountant if the value of their estates exceeds $1 million. The IRS taxes individuals separately from their estates. As such, the administrator will have to file a final income tax return on the decedent's behalf and an estate tax return on the gross value of the estate. According to Internal Revenue Code estate tax exemptions, estates that do not exceed the federal annual estate tax limits will not be responsible for paying income taxes.
  
  

Individual Income Tax Returns

• Domestic estates must file a final Form 1041, U.S. Income Tax Return for Estates and Trusts, if the value of their estates is $600 or more. However, nonresident alien estates must file income tax returns regardless of value. Form 1041 is the estate version of the individual Form 1040, U.S. Individual Income Tax Return. Generally, administrators must file a decedent's final tax return when a decedent would have normally filed his return if he was still alive. In other words, if a decedent dies on or before Dec. 31 of 2011, her estate must file her 1041 form in April of 2012. However, if he dies after Dec. 31, her estate will file her tax return in April of 2013.
  
  

Estate Income Tax Returns

• After filing an individual estate tax return, estate representatives are responsible for filing estate income tax returns. They must use Form 706, U.S. Estate (and Generation-Skipping Transfer) Tax Return, to file their estate tax returns. Generally, estate tax returns are due within nine months of a decedent's death, but the IRS may approve an extension of time to file. According to the federal tax code, estates are not responsible for filing estate income tax returns if the value of their estates is $5 million or less. Pursuant to federal tax laws, estate administrators are not liable for paying federal income taxes if the value of their estates does not exceed the annual estate tax threshold. For 2011, the limit is $5 million.