Until you start planning for your own death or are named one, you are likely unaware of the title “personal representative of an estate,” let alone the responsibilities and duties attached to this title. Executor is the traditional term for a person named in a will and subsequently approved by the probate court to administer and distribute the property of a person who has died with a will. Personal representative is simply the modern term for executor, and the person has the same legal duties to collect the assets of the deceased, pay their creditors and distribute the remaining assets to their heirs or other beneficiaries.
Typically, if you have been named as a personal representative, it is because the deceased thought of you as trustworthy and competent to handle the wrapping up of their estate. Understandably, people generally choose a close loved one as their representative, and that means many people will likely be facing emotional turmoil at the same time they have become responsible for prompt attention to legal time constraints, specifically those related to tax reporting. Dealing with the loss of a loved one is difficult, but dealing with legal and tax matters during that time can make it more difficult, so a personal representative may want to retain a professional advisor to assist them in their duties.
Common duties for a personal representative include:
Creating a new entity: When a taxpayer passes away, a new entity is established and referred to as the taxpayer’s “estate.” The estate should apply for its own employer identification number (EIN) for tax filing purposes.
Notification requirements: The personal representative must also notify all payers of income to the decedent about the decedent’s death. This includes, but is not limited to: their employer, Social Security, financial institutions, life insurance or annuity companies and any pass-through entity such as a partnership or S corporation owned in whole or part by the decedent.
Asset holding during probate or administration: It is advisable to open an estate checking account as soon as possible to hold liquidated financial assets during the probate or administration process, and pay all final debts of the decedent or administration expenses. A probate is opened to transfer the decedent’s property that is not transferred according to beneficiary or “paid on death” designations or joint ownership. The Last Will and Testament is the controlling document. If the decedent died without a will, state law controls. A decedent may have created a trust agreement to hold assets at death; if so, the trust agreement becomes the controlling document of any asset titled in the name of the trust. You should be aware of the following types of assets that can be easily overlooked:
- Income tax refunds, overpayment of bills or prepaid deposits (damage deposits for rental property or utility deposits)
- Collections (coins, stamps, etc.), antiques whose values are not recognized because they are thought to be junk, jewelry, precious gems, precious metals
- Corporate share certificates, old life insurance policies for small amounts, notes or mortgages payable to the decedent, potential money owed that is in dispute, unpaid loans to loved ones and rights to reimbursements under medical or longterm care policies
- Real property in other counties, states or countries; time share contracts or recreation properties in other states
Timely filing the appropriate required tax returns: Significantly important is the personal representative’s or survivor’s responsibility to file the tax return(s) for the deceased. The IRS and state revenue authorities might charge significant penalties for late filing. Although not all the following forms will be applicable, you should work with a professional advisor at the earliest convenience to determine the filing requirements and start collecting important information to ensure timely filing:
|Tax Return||Form||Due Date|
|Income Tax Return(s)||1040||The final return is due April 15 of the year following death. Please note that you might be responsible for decedent’s prior year tax return(s) if they have not been filed by the date of death.|
|Fiduciary Income Tax Return||1041||15th day of the fourth month
following the close of the tax year
|Estate Return||706||Nine months after the date of death|
|Gift Tax Return||709||Earlier of April 15 of the year
following gift OR Form 706 due date
|Various State Returns||Various||Various|
Further planning considerations: Besides the foregoing concerns, a representative, specifically a surviving spouse, should be addressing other concerns without delay. These include, but are not limited to: projection of income tax for you and beneficiaries, update of your current estate plan and the restructuring of life insurance policies and investment accounts.
Finding a trusted advisor to assist you in being a personal representative can often help alleviate some of the stress in what is an emotional time and help ensure last wishes are carried out in the intended way.