Tag Archives: IRS

Estate Planning

Estate Income Tax Returns

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If you have been appointed to administer the estate of a loved one, you may be confused about the need to file, or why you must file an income tax return on behalf of the estate. The short answer is that the deceased may continue to receive income following his or her death. For example, income from a business, rental property or even interest from bank accounts and dividends from stocks or mutual funds, which the Internal Revenue Service (IRS) considers as income to the estate.

You should understand that income tax is different from estate taxes. Income tax is based on the amount of the income being made by the estate. Estate taxes are based on the value of the estate itself.

The income that is received by the deceased’s estate from the time of death to the time all assets and property are distributed to the beneficiaries must be reported to the IRS. The report must be submitted to the IRS on the Fiduciary Income Tax Return or Form 1041. Assets that are received directly by beneficiaries from the decedent should be claimed on that beneficiary’s individual income tax return. The same is true for property that does not remain in the decedent’s estate for long before they are transferred to the beneficiary.

If you want to avoid the fiduciary income tax, some or all of the assets must be transferred to the beneficiaries before the end of the first tax year. Also, if the assets are transferred before they earn sufficient income to report, the estate will not hold the property long enough to earn income. There are several strategies to consider to determine the best method for managing income tax responsibilities in the estate. Property that is held in a trust or in joint tenancy is typically distributed quickly in order to reduce the tax consequences. Of course, if the probate process is stalled by legal complications or other issues, the distribution of the assets is put on hold. This means that the estate could hold the assets for a period of time that allows it to earn income and results in an estate income tax return being required.

Managing the tax issues resulting at the death of someone is complicated and requires an experienced estate planning attorney with knowledge in tax matters for estates and trusts.

The Astill Law Office has provided high quality legal services for over 30 years. We specialize in wills, trusts, estate planning, and asset protection. If you have any questions about creating a Trust, Will, or estate planning in general, contact The Astill Law Office at 801-438-8698.

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DIY + Estate Planning = Trouble

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HammerOnNailCreating an estate plan is one of the most important gifts you can give your family. It helps provide them stability and comfort, as well as helping you save money. While you may be tempted to “do it yourself” (DIY), estate planning is not an area where DIY is typically successful.

There are many pitfalls in estate planning that can get you into trouble. For example, many DIY estate planners fail to file a gift tax return with the Internal Revenue Service (IRS). The IRS uses a gift tax compliance initiative allowing the agency to use land records from both state and local governments to locate individuals for gift tax audits. In other words, the IRS conducts searches for real estate transactions that involve little or no money exchanged, which commonly occurs in DIY estate planning.

A common mistake occurs when an individual attempts to save money by transferring real property to their family members by adding their name to the deed instead of creating an estate plan. While this strategy can effectively transfer ownership of the property, it creates serious tax consequences for the person transferring the property. Transferring real estate can constitute a gift and the IRS requires the transferor to file a gift tax return and possibly pay a gift tax.

It is important to note that even if you would not owe a gift tax, your failure to file a gift tax return could result in criminal penalties. In fact, a conviction for failing to file a gift tax return can result in a penalty of up to $25,000 and up to a year in prison.

The IRS has been increasing its enforcement of gift taxes. If you are considering creating an estate plan, let us help. Don’t get yourself into trouble or put your estate in jeopardy. Whatever amount you pay a lawyer to help you will be less expensive than a DIY disaster

The Astill Law Office has provided high quality legal services for over 30 years. We specialize in wills, trusts, estate planning, and asset protection. If you have any questions about creating a Trust, Will, or estate planning in general, contact The Astill Law Office at 801-438-8698.