Estates, trusts and families
You’ve been named executor. Nobody hands you instructions.
There are usually more tax returns involved than people expect, and the deadlines start running from the date of death rather than from when you feel ready to deal with any of it.
I handle the tax side of estates and trusts — the returns, the elections, the questions your attorney doesn’t answer — so you can get on with the rest of it. And if your parents are still living and nobody has had the conversation yet, I do that too.
Where are you in this?
Someone has died
You’re the executor or personal representative, or you’re the one in the family who ended up holding it. There’s a final personal return, probably an estate return, possibly more.
Start with the section on which returns are due. If it’s been more than six months, don’t wait any longer — some of the elections have deadlines.
You’re a trustee
A trust is in place — established during someone’s life or created by a will — and it needs annual returns, distribution decisions, and someone tracking what’s income and what’s principal.
Trusts reach the top tax bracket at a remarkably low level of income, which makes distribution timing genuinely consequential.
Your parents are still living
Nothing has happened yet. You’d simply like to know that things are in order, and you have no idea how to raise it without sounding like you’re counting the inheritance.
There’s a service for exactly this further down the page. You can blame me for bringing it up.
Which tax returns are due after someone dies?
Usually two, sometimes three or four. People routinely confuse them with each other, and the confusion matters because they have different purposes, different deadlines, and different consequences for getting them wrong.
The final Form 1040
The decedent’s last personal income tax return, covering 1 January through the date of death. Due on the ordinary filing deadline for that year, and a refund is common.
Form 1041 — income tax for the estate or trust
Income earned after the date of death, while assets are still held by the estate or trust, is reported here. Interest, dividends, rents, gains on sales during administration.
An estate may elect a fiscal year rather than a calendar year, which is a genuinely useful planning tool and one that has to be chosen on the first return. It’s often filed for several years running until administration finishes.
Form 706 — the estate tax return
A tax on the value of what was transferred, not on income. Due nine months after death, with a six-month extension available — and the extension has to be requested, not assumed.
Most estates owe nothing, because the exclusion is large. But “owes nothing” and “needn’t file” are not the same thing, which is the single most expensive misunderstanding on this page. See the next section.
Form 709 — gift tax returns
For lifetime gifts above the annual exclusion. Usually filed by the living, but relevant here because prior gifts affect the estate calculation — and because a missing 709 history complicates everything afterwards.
If a married person died, read this part
When someone dies without using their full estate tax exclusion, the unused portion can be transferred to their surviving spouse. It’s called portability, and the surviving spouse’s eventual estate can use it on top of their own.
But it only happens if a Form 706 is filed making the election. It is not automatic. If nobody files, the unused exclusion is simply gone.
This is where families get hurt. The first spouse dies, the estate is well under the threshold, everyone reasonably concludes no estate tax return is needed, and nobody files one. Years later the surviving spouse dies, the combined estate has grown, and the exclusion that could have sheltered it was forfeited by inaction that seemed entirely sensible at the time.
A portability-only 706 is a simplified filing for exactly this situation — an estate with no tax to pay, filing solely to preserve the election. And if the window has already passed, there is a late-election relief procedure that covers a substantial period after death, which a great many people don’t realise exists.
If a spouse died in the last several years and no 706 was filed, that is worth a conversation this week rather than next year.
What is a step-up in basis, and why does it matter so much?
When someone dies, most assets they owned get their cost basis reset to fair market value as of the date of death. The gain that accumulated during their lifetime effectively disappears for income tax purposes.
A house bought for $60,000 and worth $400,000 at death passes to the heirs with a basis of $400,000. If they sell it soon after, there is very little gain to tax. Same with shares held for forty years.
Two things follow from this, and both get missed.
First, the date-of-death value has to be established and documented. Appraisals for real property, closing prices for securities, valuations for a business interest. Do it now, while records exist. Trying to establish what something was worth six years after the fact is miserable and expensive.
Second — and this is the one that costs families real money — gifting appreciated property during life gives up the step-up entirely. A parent who transfers the house to a child while living passes along their original basis too. The same house inherited instead would have come with a fresh basis. It is a well-intentioned move that regularly costs tens of thousands of dollars, and it is almost always made without anyone asking a tax question first.
There is also an alternate valuation date six months after death, which occasionally produces a better answer and has to be elected on the return.
What happens to an inherited IRA?
The rules changed substantially with the SECURE Act, and much of the guidance people remember is now out of date. For most non-spouse beneficiaries, the old “stretch IRA” is gone — the account generally has to be fully emptied within ten years of the original owner’s death.
Who still gets to stretch. A surviving spouse has options nobody else has, including treating the account as their own. Certain other beneficiaries — minor children of the owner, the disabled and chronically ill, and anyone not more than ten years younger than the owner — fall into a separate category with more favourable treatment.
The trap inside the ten years. If the original owner had already begun taking required distributions, the beneficiary generally has to keep taking annual distributions during the ten-year window, not simply empty it at the end. Missing those carries a penalty.
Why the timing is the whole game. Every dollar out of a traditional inherited IRA is ordinary income to you. Taking it all in one year can push a beneficiary into a far higher bracket, trigger Medicare surcharges, and affect other income-tested things — while spreading it thoughtfully across the ten years can cost dramatically less overall.
And a deduction almost nobody claims. If estate tax was paid on the account, the beneficiary may be entitled to an income tax deduction for it as they draw the money out. It requires somebody to know it exists and to carry it forward across years.
Support for executors and personal representatives
Most executors are family members doing this once, with no training, while grieving. The attorney handles the probate. The tax side usually has nobody on it.
The part nobody tells you
An executor who distributes the estate to beneficiaries before settling its debts to the government can be held personally liable for the unpaid tax. Not the estate — you.
It doesn’t come up often, but it comes up, and it is entirely preventable by doing things in the right order. There are also procedures to request early assessment and shorten the period you stay exposed.
What I do for you
- Obtain the estate’s tax identification number
- Register the fiduciary relationship with the IRS so notices reach you
- Pull the decedent’s transcripts to find unfiled years or balances nobody knew about
- Prepare the final 1040, the 1041s, and the 706 if it’s needed
- Tell you what order to do things in, and what not to distribute yet
- Prepare the K-1s beneficiaries need for their own returns
- Work alongside your probate attorney rather than duplicating them
Trusts, ongoing
Annual 1041s, distribution planning, and the 65-day rule — which lets a distribution made in the first 65 days of a year be treated as though it were made in the previous one.
That single election is often worth a great deal, because trusts reach the top bracket at a very low income level while individual beneficiaries usually do not.
If your parents are still living
Blame me. I’ll ask the questions for you.
Most people know their parents’ affairs should be in order. Almost nobody knows how to raise it without sounding like they’re counting the inheritance.
So don’t raise it. Tell them your tax guy says you have to ask, and let me run the conversation instead. It isn’t about what you’ll get. It’s about making sure what they actually want is what actually happens, and that nobody has to guess later.
How it works. You and I speak first, briefly, so I understand the family. Then I sit down with your parents — over video or by phone — and go through it properly. From that point they are my client, not you, and I’ll say that to them out loud. Parents relax considerably when they hear it, and it’s the arrangement that makes the conversation honest.
What gets covered. Where the documents physically are and who can get to them. Whether beneficiary designations still name the right people — they override the will, and they’re wrong more often than any other document. Basis and what happens if assets are gifted rather than inherited. Whether a portability filing is needed if one parent has already died. Inherited retirement accounts and what they’ll mean for whoever receives them. Who they’d want making decisions if they couldn’t.
You get a written summary of what was discussed and what remains open, including anything that needs an attorney rather than me.
If at any point it becomes clear that a parent isn’t able to make these decisions themselves, I’ll stop and tell you so. That’s a different conversation, and it belongs with an elder law attorney.
Questions people ask
What is the difference between Form 1041 and Form 706?
Form 1041 is an income tax return. It reports income the estate or trust earns after the date of death — interest, dividends, rents, capital gains during administration. Form 706 is an estate tax return, reporting the total value of what the person owned when they died.
Most estates never file a 706 because the exclusion is high, but many file 1041s for several years while the estate is being settled. They are separate filings with separate deadlines and one does not substitute for the other.
Do I need to file an estate tax return if no tax is owed?
Often yes, if the person was married. Filing Form 706 is how a surviving spouse preserves the deceased spouse’s unused estate tax exclusion, and that election is only made by filing. No filing means the unused exclusion is permanently lost, even though no tax was due at the time.
There is a simplified portability-only filing for estates with no tax to pay, and a relief procedure for making the election late. If a spouse died within the last several years and nothing was filed, it is worth checking whether it can still be done.
Is inherited money taxable?
Generally not as income to the person receiving it. Inheritances are not reported as income on your personal return, and Florida has no state inheritance or estate tax.
But there are important exceptions. Inherited retirement accounts are taxed as ordinary income as you withdraw from them. Income the estate earns before distribution is taxable. And if you later sell an inherited asset for more than its date-of-death value, that gain is taxable — which is why establishing the correct basis at the outset matters so much.
How long do I have to empty an inherited IRA?
For most non-spouse beneficiaries, ten years from the end of the year the original owner died. Surviving spouses have broader options, as do minor children of the owner, disabled and chronically ill beneficiaries, and anyone not more than ten years younger than the owner.
Within the ten years, annual distributions may also be required if the original owner had already started taking them. How you spread the withdrawals across those years is often worth more than any other decision in the estate.
Should my parents put the house in my name now?
Usually it costs the family money, though it’s asked constantly and it comes from a good place. A house transferred during life carries the parents’ original cost basis to you. A house inherited instead generally receives a stepped-up basis equal to its value at the date of death.
On a long-held home the difference can be tens of thousands of dollars in tax when it is eventually sold. There are situations where lifetime transfer still makes sense for non-tax reasons, but the tax question should be asked first — and it’s almost never asked at all.
Can you work with my probate attorney?
Yes, and it’s the usual arrangement. Attorneys handle probate administration, court filings and the legal questions. I handle the tax returns and elections. Neither of us duplicates the other and you aren’t paying twice.
If you don’t have an attorney and you need one, I’ll tell you. There are estates simple enough not to need much legal work and estates where trying to avoid it is a false economy.
Get in touch
Tell me roughly where things stand. You don’t need to have gathered anything, and you don’t need to know which returns are involved — that’s the part I work out.
If someone has died recently, there is no hurry on your side of this. I’ll tell you what genuinely has a deadline and what can wait.
Please don’t attach documents or include account details here. Once we’re talking you’ll get a secure portal.
What happens next
A reply in a day
From me. If there’s a nine-month deadline running, I’ll tell you where you are in it straight away.
A call, unhurried
Half an hour. What happened, what’s in the estate, who’s involved, what’s already been done. Mostly me listening.
A written plan
Which returns are due, in what order, by when, and a fixed price for each. So you can see the whole shape of it rather than discovering it piece by piece.
Then it’s handled
Often over more than one year, since estates rarely close quickly. I’ll keep track of the deadlines so you don’t have to hold them in your head.
Michael Jones, EA & CFP® — Enrolled Agent, licensed by the U.S. Department of the Treasury to represent taxpayers before the IRS in all fifty states. I prepare tax returns and handle tax matters; I don’t practise law and I don’t draft or advise on estate planning documents. This page is general information, not advice about your situation, and thresholds change.