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3 taxes that executors should know about

On Behalf of | Jun 29, 2021 | Firm News |

Estate administration isn’t just about handing out property to grateful beneficiaries. It is also about fulfilling all of the unfinished obligations of the deceased individual. As the executor of an estate in Kentucky, you have an obligation to both the person who named you executor before dying and their beneficiaries.

You also need to make sure that you follow the law, including the repayment of debts from estate proceeds and the proper filing and payment of all necessary taxes. Following are three kinds of taxes that could potentially apply to the estate or the assets it contains.

Estate taxes (“death taxes”)

Some people have to pay tax with the assets from their estate based on the value of the property that they leave behind. There is a federal estate tax, as well as state estate taxes in some places. Kentucky does not levy a state estate tax, but estates worth more than $11.65 million could be subject to federal estate taxes.

Income taxes for the estate

Sometimes executors need to sell off certain assets and then divide the proceeds among the beneficiaries. If the sale of estate property generates more than $600 in income, you will need to file an estate income tax return for each tax year that the estate earns income. If it takes you more than one year to finish the administration of the estate, you may need to file state income tax returns multiple years in a row.

Inheritance taxes

While Kentucky does not levy an estate tax against the estate itself, it will expect certain beneficiaries to pay taxes on their inheritance. The executor doesn’t need to pay these taxes unless they’re a beneficiary. However, it’s helpful to tell beneficiaries about their potential obligations.

Knowing about the tax obligations associated with the estate and those who benefit from it can help you do a better job of estate administration.