A personal representative or executor must oversee estate administration. They take responsibility for carrying out the deceased person’s wishes and fulfilling their obligations.
If they make major mistakes during that process, they could face financial liability or litigation intended to remove them from their position. Personal representatives must review estate planning documents and financial records. They need to communicate with interested parties and account for their use of estate resources.
Filing tax returns and retaining assets to cover tax obligations is a key component of successful estate administration. What taxes do estates need to cover?
Income taxes
There are two types of income taxes that a personal representative may need to address. The personal representative typically files a final tax return on behalf of the deceased individual and must pay any balance they owe. They may also have to file an income tax return if they sell estate resources and generate $600 or more in revenue. Personal representatives often delay distributing resources until after paying creditors and filing any necessary income tax returns.
Estate taxes
Multi-million-dollar estates may be subject to estate taxes. While Michigan doesn’t collect estate taxes, the federal government does. Personal representatives may need to liquidate assets to cover federal estate tax obligations. The tax rate could be anywhere from 18% to 40% of the total estate value.
Managing financial responsibilities is critical during estate administration. Personal representatives often need support to ensure they don’t make mistakes that lead to financial liability. Thankfully, they can usually rely on the estate itself to pay for their legal representation throughout the probate process.