Simply put, being named an estate executor can be overwhelming. Not only is it a difficult and emotional time, but we often hear from our clients that they are unfamiliar with how to deal with estate tax matters after a loss of a loved one – after all, it’s not a role that’s often expected.
Generally speaking, an estate plan includes a number of documents from a will to a trust that are coordinated prior to one’s death, typically through a legal expert. Where a trusted tax adviser steps in is to handle all the necessary documentation for filing final tax returns. Many times, executors know they have to file a final return, handle all debts and abide by the wishes of their loved one, but guidance and support through the final tax process may provide a sense of security to help families get through this difficult time.
If you’ve become an estate executor recently you may be thinking “what do I really need to know to get started?” Based on our generations of estate tax experience at Lodovico & Associates, the following may help to steer you on the right path.
Proper inventory of assets is critical.
From bank accounts to investment such as CDs and bonds to homes and other properties, it’s essential to complete a thorough inventory of assets at the time of death in preparation of filing final estate tax returns. Any income following a death, such as interest on investments, are subject to a separate tax return filing.
Asset titles make a difference.
Not only is it important to complete a thorough inventory of all assets, but it’s helpful to work with a trusted tax adviser to understand the tax implications of certain nuances such as how property titles can impact final tax returns. For example, are bank accounts or real estate titled in multiple names? Let’s say a bank account is titled in the name of the deceased and his daughter. His daughter is accountable for taxes on only half of the total amount in the account. A trusted tax adviser can guide you through these considerations.
A Power of Attorney and Estate Executor are not the same.
Following the passing of a loved one, a Power of Attorney does not have the right and cannot execute an estate plan. An estate executor or personal representative must be named. Once that’s completed, at Lodovico & Associates, we guide the executor through the process of taking inventory, establishing an estate account and preparing final tax returns. We also work together with family members, attorneys and more to ensure a collaborative process.
Pennsylvania imposes inheritance tax.
Not all states have inheritance tax, however, any property or assets in the state of Pennsylvania are subject to inheritance tax. The heir, not the estate, is responsible for the tax, unless stated otherwise in a will.
Inheritance tax does not follow the same schedule as federal income tax.
If paid within 90 days of death, inheritance tax is eligible for a five percent discount. Otherwise, it’s due within nine months.
Understanding estate tax deductions makes a difference.
At Lodovico & Associates, we guide our clients through all applicable deductions on the final tax returns – from funeral expenses to professional fees to mortgages.
To learn more, call our trusted tax advisers and consultants or visit https://lodovicotaxpros.com/services/estates/.
By Eugene (Gene) Lodovico, the chairman and founder of Lodovico & Associates, P.C.
Gene directs his practice with a concentration in Federal and State Income Tax Return Preparation services, with a particular emphasis on Estate and Tax services. As one of the most experienced, knowledgeable and well-respected tax and accounting professionals in the area, Gene is currently serving the third generation of tax clients since the inception of his tax preparation and accounting practice.