April 2019 JD Supra
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Understanding a Personal Representative was published by JD Supra on 4/16/19.

A Personal Representative (PR) is in charge of

the property (estate) of an individual who has died (known as the decedent).  When a person passes away, their assets become property of their estate. Any income those assets generate is also part of the estate and may trigger the requirement to file an estate income tax return.  The PR is responsible for completing and filing required federal income tax returns and paying any taxes due on behalf of the decedent.

The PR is “usually” named in a decedent’s will to administer the estate and distribute properties as the decedent has directed. The court will appoint an “Administrator” if the decedent left no will, if there is no executor named in the will or the person named as executor does not want to serve or can not serve in that capacity.   An executor and an administrator perform the same duties and have the same responsibilities.

For estate tax purposes, if there is no executor or administrator appointed, “executor” includes:

  • anyone in actual or constructive possession of any property of the decedent
  • the decedent’s agents and representatives
  • safe-deposit companies
  • warehouse companies
  • other custodians of property such as brokers holding securities of the decedent as collateral
  • debtors of the decedent   

The primary duties of a PR are:  

  • Collect all the decedent’s assets
  • Pay his or her creditors
  • Distribute the remaining assets to the heirs or other beneficiaries.
  • Apply for an employer identification number (EIN) for the estate
  • File all tax returns, including income, estate, and gift tax returns, when due
  • Pay the tax determined up to the date of discharge from duties
  • If any beneficiary is a nonresident alien, there are duties as a withholding agent

What kind of taxes does an Estate owe?

There are two kinds of taxes owed by an estate:

  • Tax on the transfer of assets from the decedent to their beneficiaries and heirs (the estate tax) via Form 706 (United States Estate (and Generation-Skipping Transfer) Tax Return.   The filing threshold for 2019 is $11,400,000
  • Tax on income generated by assets of the decedent’s estate (the income tax) via Form 1041 (U.S. Income Tax Return for Estates and Trusts).   Estate with gross income of $600 or more during a tax year must file a Form 1041.

A fiduciary relationship

A PR has a Fiduciary responsibility.  “Fiduciary” means any person acting in a position of trust on behalf of others.  It includes a guardian, trustee, executor, administrator, receiver, or conservator. A PR for a decedent’s estate is a fiduciary. The Fiduciary must file Form 56 (Notice Concerning Fiduciary Relationship).

Who should hire a PR to represent them and prepare and file the Returns?

Many estates appoint the services of a CPA and a Tax Attorney.   The attorney handles probate matters and reviews the impact of documents on the estate tax return. The CPA handles the actual return preparation and some representation of the estate in matters with the IRS. In some situations, other professionals such as appraisers, surveyors, financial advisors may need to be engaged.  

  • The IRS recommends that the following is considered when handling Estate Tax issues:
  • How complex is the estate? Estates over $1,000,000 have complexity involved.
  • How large is the estate?
  • In what condition are the decedent’s records?
  • How many beneficiaries are there and are they cooperative?
  • Do I need an estate tax professional?

Don’t be a Victim of your own Making   

Estates could have different and unique tax obligations and the rules are complex.  Estates that fail to fulfill their obligations could be subject to fees and penalties.  Estates ought to consider a PR that can:

  • Meet tax filing deadlines and the timely payment of taxes
  • Assessing the value of assets
  • Experience in dealings with Estates
  • Ability to work directly with the IRS if there are issues