There are three types of tax returns that the family and/or executor may need to file after death:
The final individual income tax return (Form 1040)
This tax return will include all income earned and expenses paid through and including the date of death.
If the decedent had a surviving spouse, a final joint return can be filed and signed by the spouse. If not, the executor will be responsible for filing.
Since many tax documents issued in the year of death include income earned after death, it may be necessary to prepare an allocation of pre- and post-death income. Any income earned after date of death may need to be allocated to either the estate or a beneficiary.
The final individual income tax return is due on April 15 of the year following death. The decedent’s tax preparer will likely be able to prepare the final individual income tax return.
The estate tax return (Form 706)
If the decedent’s total assets at death are valued over the federal filing threshold ($11,180,000 in 2018), a federal estate tax return will be required. Additionally, a state estate tax return may also be required. Not all states impose an estate tax and the filing threshold for the state may differ from the federal—i.e., decedents dying in 2018 as residents of New York State with assets over $5,250,000 would be required to file a New York estate tax return.
The estate tax return is due within nine months from the date of death. The executor is required to file this return. If no executor is appointed, any beneficiary who receives property from the decedent can file the return.
A surviving spouse may want to file a federal estate return, even if the estate does not exceed the filing threshold, in order to elect “spousal portability,” which passes the decedent’s unused exemption to the surviving spouse.
It is important that the estate tax return is prepared by an attorney or accountant with sufficient experience and knowledge.
The fiduciary income tax return (Form 1041)
If a decedent dies leaving property in a sole name, it is likely that the executor will be required to file a fiduciary income tax return. A separate tax identification number issued by the IRS, known as an “EIN,” is necessary for the filing of a fiduciary income tax return.
This tax return reports all income earned on assets that were in the decedent’s name alone from date of death through the distribution to the beneficiaries and close of the estate. If the decedent’s resident state has state income tax, a state fiduciary income tax return will also be required.
The rules pertaining to the preparation of a fiduciary income tax return differ from personal income tax returns, and therefore should be prepared by an attorney or accountant with sufficient experience and knowledge.