Planning Briefs

"Financial peace of mind" is an overused term in financial services marketing. However, the help we provide in settling financial details of your estate indeed may bring you genuine—and eternal—peace of mind.

After you pass away, a personal representative, usually your executor, is required to prepare a regular income tax return in the year of your death (Form 1040). If any passive unearned income was paid to you after your death, for example, from real estate investments or businesses in which you are not an active participant, your executor must also file an estate income tax return (Form 1041). If you die this year, for example, your 1041 is going to be due on April 15th of the next year.

The executor of your estate also must apply for an EIN (Employer Identification Number). Your executor will also be responsible for informing various government entities, like the Social Security Administration, that you died. In addition, your personal representative or executor must provide detailed contact information where correspondence related to IRS and state tax filings can be sent.

In the unlikely event you have a taxable estate and trust—only about 1% of estates are federally taxable—your executor and trustee may need to file a Form 56, Notice Concerning Fiduciary Relationships, which arranges for the IRS to send tax correspondence. In addition, the estate will be required to tell the IRS if taxes will be paid annually on a calendar- or fiscal-year basis.

Where your death can become more complicated for your heirs, trustee, and executor is when they learn, after you're gone, that you underpaid the IRS. An executor or trustee would be obliged to confess to the IRS that you ran afoul of the rules and may owe them some money. Take comfort in knowing that the IRS often is forgiving about confessed mistakes.

As financial fiduciaries, we are available to counsel you on matters of trust and, yes, help you achieve financial peace of mind.