Frequently Asked Questions (FAQs)

Taxes

What tax returns are necessary after someone dies?

-Income Tax Returns

Final 1040/540. The decedent’s final income tax returns (1041,541) for the period from January 1 until the date of death, are due by April 15 of the following year. For a couple, if one spouse dies, the surviving spouse is entitled to file a joint return for the year of death, again by April 15 of the following year.

Fiduciary Returns (1041/541). If there is a living trust, usually trust income tax returns (1041,541), often refereed to as fiduciary returns, for the period beginning with the date of death, need to be filed. When they need to be filed will depend on the closing date selected by the Successor Trustee. That date can be December 31 of the year of death, or a date after that, but not later than the last day of the month preceding the month of death. (For example, for a decedent who dies May 15, the last day which can be selected for the fiscal year would be April 30 of the following year. The returns are due 3 1/2 months after that which would be August 15.) If there is a probate estate, the same basic rules apply.

-Estate Tax Return (706)

If the value of the decedent’s assets at the date of death exceeds a certain value, formally referred to as the “federal estate tax exemption equivalent”, a federal estate tax return (706) is required. If a federal estate tax return is required, so is a California estate tax return (Form ET-1).

Estate tax returns must be filed not more than 9 months after death unless an extension is obtained. If a tax is due, it must be paid not more than 9 months after death.

Even when estate tax return is not required, it may be prudent to file one anyway. First, an estate tax return establishes the “stepped-up” basis of assets owned at death (see below). Also, if you file a return and later discover additional assets which bring the total estate over the exemption amount, you will avoid a penalty for late filing and probably avoid a tax for late payment of taxes.

Remember also that how the decedent held title at death - whether in a living trust, joint, or in trust for someone else - doesn’t matter. All such assets, as well as life insurance policies owned by the decedent and retirement accounts, are reportable and possibly taxable.

Finally, remember, the federal estate tax return is not an income tax return. It is a report of the assets belonging to the decedent at death, or in some instances, six (6) months after the date of death