Estate Administration
Tax Compliance
After a loved one passes, there is a sequence of tax filings and deadlines that must be handled correctly. We walk you through what needs to happen and when, from the first week through final distribution.
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There is a lot to do, and the order matters
When someone passes away, their estate becomes a separate taxpayer with its own filing requirements. On top of that, the decedent’s own tax history needs to be reviewed and resolved. There are deadlines, elections that cannot be undone, and filings that depend on each other.
Most families have never been through this before. Below is the sequence of what typically needs to happen, in roughly the order it needs to happen. We handle all of it.
Step 1: Getting the estate set up
The first thing the estate needs is its own tax ID number, called an EIN. You cannot open an estate bank account or file any returns without one. If your loved one had a revocable trust (sometimes called a living trust), that trust may also need a new EIN now that the grantor has passed.
This is also when we evaluate the fiscal year election. The estate gets to choose what 12-month period its tax year covers, and the right choice can defer taxes for beneficiaries by up to 11 months. This election is permanent, so it needs to be made carefully before the first return is filed.
Step 2: Checking the decedent’s tax history
Before we file any new returns, we pull IRS transcripts for the person who passed. These records show us whether all prior returns were filed, whether any taxes are owed, and whether there are any open issues with the IRS or state tax authorities.
If there are problems, such as unfiled returns from prior years, unpaid balances, or unresolved notices, they need to be dealt with early. The estate cannot close cleanly with outstanding tax liabilities, and the executor can be held personally liable for distributing assets before taxes are paid. We handle all of this: responding to notices, filing missing returns, and negotiating with the IRS or state agencies when needed.
Step 3: Setting up the accounting
Before any tax returns can be prepared, we need accurate records of what the estate owns and what has happened financially since the date of death. This accounting feeds everything else:
- An inventory of all assets as of the date of death, with valuations
- A record of all income the estate earns (interest, dividends, rent, etc.)
- A record of all expenses paid (legal fees, property maintenance, funeral costs, etc.)
- A record of all distributions made to beneficiaries
If the court requires a formal accounting, or if beneficiaries want to see where the money went, these records are the foundation. We maintain them throughout the life of the estate.
Step 4: The final tax return for the person who passed
The decedent’s final Form 1040 covers January 1 through the date of death. Any income earned after death belongs on the estate’s return, not this one.
There are several decisions to make on the final return: filing status, whether to deduct medical expenses here or on the estate tax return, and how to handle income that the decedent earned but had not yet received (called income in respect of a decedent). If the decedent made gifts during the year, a gift tax return (Form 709) may also be due.
Step 5: Trust filings
If your loved one had a revocable trust, it became irrevocable at death. That triggers new tax filing requirements for the trust. There are two options:
- File separately: the trust gets its own EIN and files its own return (Form 1041) on a calendar year.
- Section 645 election: the trust is combined with the estate for tax purposes. All income is reported on a single return, and the trust can use the estate’s fiscal year. This often produces a better result.
If there were other trusts already in place (an irrevocable life insurance trust, a special needs trust, etc.), those continue to file their own returns. If the will creates new trusts, they begin filing once they are funded. When multiple trusts and an estate are all active at the same time, coordinating everything is important.
Step 6: The estate’s income tax returns
The estate files its own income tax return (Form 1041) for each year it remains open. The first return covers the period from the date of death through the fiscal year-end that was chosen in Step 1.
Each year, K-1s are sent to the beneficiaries showing their share of the estate’s income. Beneficiaries report this on their personal tax returns. The type of income (interest, dividends, capital gains) keeps its character, so it is taxed at the same rates it would have been if the beneficiary earned it directly.
Step 7: The estate tax return
The federal estate tax return (Form 706) is due nine months after the date of death, with an automatic six-month extension available. Not every estate is required to file one. It depends on the total value of the estate and whether a portability election is needed to preserve the unused exemption for a surviving spouse.
Once the 706 is filed, Form 8971 must be sent to the IRS and to each beneficiary within 30 days. This form reports the tax basis of inherited assets. Beneficiaries must use these values when they eventually sell the property.
Step 8: Closing the estate
Before the estate can close and final distributions can be made, we want to make sure the IRS will not come back later with an unexpected bill. Two filings help with this:
- Form 4810 asks the IRS to assess any income tax due within 18 months instead of the normal three years. This covers the decedent’s final return and the estate’s 1041s.
- Form 5495 asks the IRS to make a final determination on the estate tax (Form 706) and release the executor from personal liability.
The final Form 1041 is filed for the estate’s last period. Any unused deductions pass through to the beneficiaries. If a 706 was filed, the IRS issues a closing letter confirming no additional estate tax is due. Once everything is resolved, final distributions can be made and the estate can close.
What we handle
- EIN applications for the estate and any trusts
- Fiscal year election analysis
- IRS and state transcript review
- Resolution of any outstanding tax issues the decedent left behind
- Asset inventory and date-of-death valuations
- Income, expense, and distribution tracking throughout administration
- Court accountings and beneficiary statements
- The decedent’s final Form 1040
- Section 645 election coordination with revocable trusts
- Annual Form 1041 filings for the estate and related trusts
- K-1 preparation for all beneficiaries
- Form 706 estate tax return coordination
- Form 8971 basis reporting
- Form 4810 and Form 5495 for prompt assessment and closing
- State income tax filings
Frequently Asked Questions
What tax filings are required after someone dies?
Several filings are typically required: the decedent’s final individual tax return (Form 1040), the estate’s income tax return (Form 1041) for each year the estate is open, and possibly a federal estate tax return (Form 706) if the estate exceeds the exemption amount or a portability election is needed. If the decedent had a revocable trust, that trust may also need its own tax return, or it can be combined with the estate’s return through a Section 645 election. There may also be state-level filings depending on where the decedent lived and owned property.
What is the first thing we need to do for taxes after the death?
The first step is getting an EIN (Employer Identification Number) for the estate. This is the estate’s tax ID number, and you need it before you can open an estate bank account or file any returns. After that, we pull IRS transcripts for the decedent to check for any unfiled returns, unpaid balances, or other tax issues that need to be resolved before the estate can move forward.
How long does the estate stay open for tax purposes?
The estate stays open until all assets have been distributed to the beneficiaries and all tax obligations have been resolved. Simple estates may close within a year. More complex estates, especially those involving real estate sales, ongoing income, or IRS correspondence, can remain open for two to three years or longer. The estate files an income tax return (Form 1041) for each year it remains open.
What is Form 4810 and why would we file it?
Form 4810 is a Request for Prompt Assessment. It asks the IRS to assess any income tax due within 18 months instead of the normal three-year window. Filing it allows the estate to close sooner without worrying that the IRS might come back years later with an additional bill. For the estate tax return (Form 706), there is a separate form, Form 5495, that asks the IRS to make a final determination and release the executor from personal liability.