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The Most Important Tax Issues to Consider When Managing a Loved One’s Estate


It can be stressful enough dealing with the loss of a loved one without also having to worry about all of the tax issues associated with being the executor of the estate. Below, we cover some of the most important considerations to take into account when you are managing a loved one’s estate to help you get through what could be a difficult time:

The Role Of The Executor, Trustee, And Administrator

An executor is the individual who is identified in the decedent’s will as winding up and managing the financial aspects of the estate. The job is similar to that of a trustee when it comes to dealing with a family trust and an administrator when there is no will or trust and therefore the probate court has to appoint someone. All of these individuals have the task of identifying the estate’s assets, paying off debts, and distributing remainders to the rightful beneficiaries and heirs. The executor then also has to file tax returns and pay any taxes owed.

Increasing The Federal Income Tax Basis For Inherited Assets

If the decedent left appreciated capital gain assets – such as real property – the beneficiary can increase the federal income tax basis of that asset to reflect its fair market value as of the decedent’s date of death. Therefore, when that asset is sold, there will only be tax on the increase in the value of the asset above its value on the decedent’s date of death.

Figuring Out How To Exclude Gains From Taxation When Selling A Principal Residence

Unmarried individuals can exclude $250,000 of gain from federal income taxation from selling a principal residence from the federal income tax. For married joint filing couples, that can get up to $500,000. While the surviving spouse of the decedent cannot file a joint return for the tax years after the year during which the decedent died, an unmarried surviving spouse can claim the larger $500,000 gain exclusion for the sale of the principal residence that occurs within two years  after the decedent’s date of death.

Required Minimum Distribution Rules (RMDs) For Inherited Retirement Accounts (IRAs)

It is also important to note just how crucial it is for beneficiaries to pay attention to the required minimum distribution (RMD) rules when it comes to inherited IRAs. Failure to withdraw the required minimum distribution amount for any year exposes to that beneficiary to a 50 percent penalty and this can add up year after year until compliance is obtained. Also note that special required minimum distribution rules apply if the decedent’s surviving spouse is the sole beneficiary of the IRA and an RMD has to be taken by December of the year that the decedent passes.

An attorney can help a surviving spouse achieve better tax results under these rules if the inherited account is treated as their own account, however, you will want to weigh the pros and cons of taking this route in the first place with an attorney and tax advisor. Also note that special rules apply when non-spouse beneficiaries inherit an IRA, especially when it comes to accounts with multiple designated beneficiaries.

Contact Our Florida Wills and Probate Attorneys to Find Out More

At Suncoast Civil Law, our Sarasota wills and probate attorneys are here to help executors, trustees, and administrators in Florida ensure that the estate is managed in accordance with the law. Contact us today to find out how we can help you.