Taxes are one of the biggest liabilities during probate proceedings. The personal representative of someone’s estate will need to plan ahead for tax responsibilities and ensure that they pay them in full before distributing resources to beneficiaries of the estate. If they fail to do so, they could be personally responsible for the value of the assets they distribute without paying taxes first.
It can be hard to explain to those waiting for an inheritance that you need to wait before distributing assets because of possible tax liabilities, but much of the probate process involves waiting. The more you educate yourself about the potential tax liabilities involved in probate proceedings, the more easily you can address those tax matters and any frustrations on the part of the beneficiaries.
What are the tax responsibilities that fall to you as the personal representative of an estate?
A final income tax return
Even when the decedent had been retired for years prior to their death, you still need to file an income tax return following their passing. The final income tax return helps address any outstanding tax liabilities and allows the IRS to update its internal records.
You may need to pay taxes on the total value of the estate. There are estate taxes collected by both the federal government and the state of Washington. If the total value of the estate exceeds a set limit, there will be taxes due.
As of 2022, the exclusion amount for Washington state estate taxes is $2,193,000. That is a fraction of the threshold for federal estate taxes, which is $12,060,000 in 2022.
Income taxes for the estate
If the testator left instructions for you to sell some of their property in an estate sale or to liquidate specific assets, like real estate, the proceeds of those sales may trigger income taxes for the estate. If the sale of estate assets generates $600 in revenue or more, you will typically need to file an income tax return on behalf of the estate and pay taxes based on those proceeds.
When you understand the tax liabilities involved in the state administration, you can plan for them and communicate about them more effectively. Learning more about the probate process in Washington will help you avoid common and often expensive mistakes.