Individual Fiduciary And Estate Tax Obligations Of Personal Representatives

William Sweeney


The personal representative is responsible for filing any final individual income tax return, fiduciary tax return and/or estate tax return. It is likely that you will have to file at least one tax return as personal representative. A personal representative of an estate is an executor, administrator or anyone who is in charge of the decedent's property. The taxes to be paid by the personal representative are frequently thought of as only death taxes, i.e., federal estate tax. However, you also may need to file income tax returns for the decedent and/or the estate and fiduciary tax returns for the estate.

The representative must file all tax returns due and pay all taxes due. As personal representative, you may become personally liable for the payment of taxes if, before the estate is distributed and you are discharged, you had notice of any tax obligations or failed to exercise due diligence as to whether any tax obligations existed.

You may also become liable for any penalties or interest that may assessed on account of late filing, undervaluation, or other deficiencies in the filing of returns.

A common area of misunderstanding lies in fixing the responsibility for filing various tax returns and other documents required for federal and state tax purposes. It is strongly recommended that you retain a professional tax preparer or accountant who is familiar with the tax requirements that apply to a decedent and his or her estate.

However, some general information follows as to the requirements for filing the decedent's final income tax return, fiduciary income tax returns, and estate tax returns.


Effective 1 July 2008, California Probate Code 9202 requires the Franchise Tax Board to be notified of an open probate for a deceased taxpayer. The change is under Section C of the probate code and reads as follows:

"(c) (1) Not later than 90 days after the date letters are first issued to a general personal representative, the general personal representative or estate attorney shall give the Franchise Tax Board notice of the administration of the estate. The notice shall be given as provided in Section 1215. (2) The provisions of this subdivision shall apply to estates for which letters are first issued on or after July 1, 2008."

Mail FTB the letters of administration to: Franchise Tax Board, P O Box 2952, MS A— 454, Sacramento, Ca 95812-9974 To expedite processing for filing claims, notice of administration may be faxed to: FTB Decedent Team (916) 845-0479.

To determine whether a final income tax return for the decedent is required, you must know the decedent's gross income, marital status, and age at death. The decedent's executor or other person responsible for administrating the decedent's estate is responsible for filing any income tax returns and making sure that any tax that is due is paid.

This includes filing the final tax return for the decedent (for the year of death) and any prior year returns which were not filed.

The executor may file either a joint return with the surviving spouse or a separate return.

A surviving spouse alone may file a joint return if:

No return was filed by the decedent, and

No executor or administrator was appointed, or

No executor or administrator was appointed by the due date of the surviving spouse's return.

The final return covers the period from the beginning of the tax year to the date of death. The income and deductions reported on the final return depend on the decedent's method of accounting.

Cash Method - If the decedent was a cash basis taxpayer, which most individuals are, report all income actually or constructively received before death. Only the expenses paid before death can be deducted.

Accrual Method - If the decedent was an accrual basis taxpayer, report the income that the decedent accrued or earned before death. Deduct the expenses that the decedent was liable for before death, regardless of whether the expenses were paid.

The person claiming a refund on behalf of a deceased taxpayer must show that he/she is:

The administrator or executor of the deceased taxpayer's estate by attaching certified copies of the letters of administration or letters of testamentary to the return, or

Entitled to the refund as the deceased taxpayer's surviving spouse or sole beneficiary under the California Probate Code.

Attach to the return a copy of Federal Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer, or a copy of the death certificate. You can order federal Form 1310 from the IRS Website at:


When a taxpayer dies, a new taxpaying entity – the taxpayer's estate – is born to make sure no taxable income falls through the cracks. Income is taxed either on the taxpayer's final return, on the return of the beneficiary who acquires the right to receive the income, or if the estate receives $600 or more of income, on the estate's income tax return.

The chore of filing the taxpayer's final return usually falls to the executor or administrator of the estate, but if neither is named, a survivor must do it. The return is filed on the same form that would have been used if the taxpayer were still alive, but "deceased" is written after the taxpayer's name. The filing deadline is April 15 of the year following the taxpayer's death.


Only income earned between the beginning of the year and the date of death should be reported on the final return.

For taxpayers who use the cash method of accounting, as most do, income is considered earned as it is actually received or at least made available to them. Taxpayers who use the accrual method of accounting, on the other hand, count income as earned when they actually earn it, regardless of when they receive it.

The distinction is important because some income that might logically seem to belong on the decedent's final return is considered income in respect of a decedent (defined below) and is taxable either to the estate or to the person who receives it.


Income in respect of a decedent refers to income that the decedent had a right to receive at the time of death, but that is not reported on his or her final return. It does not include earnings on savings or investments that accrue after death.

Say a taxpayer who has a substantial amount in money-market mutual funds dies on June 30th. Only interest earned up to that date would be reported on the final tax return. Earnings after that date are taxable to the beneficiary of the account, or to the estate.

That can create some hassles since the payer – a mutual fund, bank or broker, for example – will report income to the IRS on a 1099 form. Although you should try to get ownership of the account changed as quickly as possible after the death of the owner, the 1099 income report may well show more income assigned to the decedent than it should. In such cases, you must report the entire amount on Schedule B of the decedent's return, and then deduct the amount that is being reported by the estate or other beneficiary who actually received the income.

Money you inherit is generally not subject to the federal income tax. If you inherit a $100,000 certificate of deposit, for example, the $100,000 is not taxable. Only interest on it from the time you become the owner is taxed. If you receive interest that accrued but was not paid prior to the owner's death, however, it is considered income in respect of a decedent and is taxable on your return.


For income tax purposes, a decedent's probate estate is a separate entity that begins at the decedent's death.


Rather than distributing all assets after the owner's death, some estates continue to retain assets such as stocks or rental property. The income earned by the estate's assets must be reported on an estate income tax return (Form 1041). As of 2014, the fiduciary (or one of the joint fiduciaries) must file Form 1041 for a domestic estate that has:

Gross income for the tax year of $600 or more, or

A beneficiary who is a nonresident alien.

Schedule K-1 forms may also be needed after the income-earning assets have been distributed to the heirs, who will then to report the Schedule K-1 on their own personal tax returns.

An estate is a domestic estate if it is not a foreign estate. A foreign estate is one the income of which is from sources outside the United States that is not effectively connected with the conduct of a U.S. trade or business and is not includible in gross income. If you are the fiduciary of a foreign estate, file Form 1040NR, U.S. Nonresident Alien Income Tax Return, instead of Form 1041.


As of 2014, a California Fiduciary Income Tax Return (Form 541) must be filed for the taxable period if:

Gross income for the taxable year of more than $10,000, regardless of the amount of net income (California Revenue &Taxation Code (CR&TC) Section 18505(f)).

Net income for the taxable year of more than $1,000 (CR&TC Section 18505(d)).

An alternative minimum tax liability (CR&TC Section17062 (5)(c)(ii)).

As a practical matter, most tax professionals prepare California fiduciary income tax returns when federal returns are required. If an income tax return is required, the representative may select either a fiscal year, the first year of which ends on the last day of any month no more than 12 months after death, or a calendar year.

The estate's taxable year is considered to begin the day immediately after the date of death. The estate's income tax return is due on or before the 15th day of the fourth month after the end of its fiscal year or, if the estate is on a calendar year, on or before April 15th.



California does not have an inheritance tax. The Economic Growth and Tax Relief Reconciliation Act of 2001, phased out the California state death tax credit over a four (4) year period beginning January 2002. Effective January 1, 2005, the state death tax credit has been eliminated. The information below summarizes the filing requirements for California Estate, Inheritance, and/or Gift Tax:

For decedents that die on or after January 1, 2005, there is no longer a requirement to file a California Estate Tax Return.

For decedents that die after June 8, 1982, and before January 1, 2005, a California Estate Tax Return is required to be filed with the State Controller's Office if a federal estate tax return (Form 706) is being filed with the Internal Revenue Service.

For decedents that died on or prior to June 8, 1982, the State Controller's Office will continue to collect the Inheritance Tax.

For gifts made prior to June 8, 1982, the State Controller's Office will continue to collect the Gift Tax.


The federal estate tax is an excise tax imposed on all transfers of property from a decedent (whether made during lifetime or at death) and is based on the decedent's taxable estate, that is, the gross estate less allowable deductions, reduced by allowable credits. A federal estate tax return must be filed on Form 706 for the estate of every U.S. citizen or resident whose gross estate, valued as of the date of death, plus adjusted taxable gifts after 1976 and specific exemption, exceeds the applicable exclusion amount under IRC §2010(c) for the date of death calendar year.

The federal estate tax is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in at the date of death. The fair market value of these items is used, not necessarily what you paid for them or what their values were when you acquired them. The total of all of these items is your "Gross Estate." The includible property may consist of cash and securities, real estate, insurance, trusts, annuities, business interests and other assets.

Once you have accounted for the Gross Estate, certain deductions (and in special circumstances, reductions to value) are allowed in arriving at your "Taxable Estate." These deductions may include mortgages and other debts, estate administration expenses, property that passes to surviving spouses and qualified charities. The value of some operating business interests or farms may be reduced for estates that qualify.

After the net amount is computed, the value of lifetime taxable gifts (beginning with gifts made in 1977) is added to this number and the tax is computed. The tax is then reduced by the available unified credit.

Most relatively simple estates (cash, publicly traded securities, small amounts of other easily valued assets, and no special deductions or elections, or jointly held property) do not require the filing of an estate tax return. A filing is required for estates with combined gross assets and prior taxable gifts exceeding $1,500,000 in 2004 - 2005; $2,000,000 in 2006 - 2008; $3,500,000 for decedents dying in 2009; and $5,000,000 or more for decedent's dying in 2010 and 2011 (note: there are special rules for decedents dying in 2010); $5,120,000 in 2012, $5,250,000 in 2013 and $5,340,000 in 2014.

Beginning January 1, 2011, estates of decedents survived by a spouse may elect to pass any of the decedent's unused exemption to the surviving spouse. This election is made on a timely filed estate tax return for the decedent with a surviving spouse. Note that simplified valuation provisions apply for those estates without a filing requirement absent the portability election.

A Federal estate tax returns must be filed within nine months after the date of death unless an extension has been received. The extension of time to file is not given automatically, so an application for an extension of time to file should be made to the IRS center where the return is to be filed in adequate time before the return is due, to enable the IRS to consider and reply to the application.

An extension of time to file does not extend the time for payment of the estate tax due, which must be requested separately if needed. Separate penalties may also be assessed for late filing and late payment of the tax due, in addition to interest on the late payments.

The IRS may also impose an "accuracy-related penalty "if it determines that any of the assets are listed on the return are undervalued. It is therefore important to value the assets as accurately as possible. The use of qualified professional appraisers is strongly recommended.


If you are a Personal representative of a decedent's estate you may not know what to do. That is where I can be of help. I make a difficult and bewildering California probate process as simple as possible. If you wish to gain more information on California probate or if you need the general assistance of a California probate lawyer, please contact me for a free consultation. I will spend time with you to answer your questions.

I assist clients in all Southern California counties, including Imperial County, Los Angeles County, Orange County, San Bernardino County and San Diego County. You can reach me by phone at 760-989-4820, by email at [email protected] or through my online contact form.