One of the critical duties of the trustee is to see to it that all taxes are paid. Since it's very important that the trustee ensures that all debts are paid before disbursing assets to the beneficiaries, one of the priority debts will be the decedent's taxes. If the trustee fails to pay off debts and file all necessary tax returns, at the very least the trustee can be held personally liable for them.
The decedent may have easily accrued unpaid taxes that will be due with their final return, particularly if the decedent was physically ill in the last few years of life. It will be the trustee's responsibility to file that return and pay any and all taxes that are due. Additionally, the decedent may have accrued back income taxes, especially if he or she had investments in tax shelters or if they were self-employed.
Trustee Responsibility for Filing Tax Returns
The trustee is responsible for filing all tax returns that are due for the decedent and the trust. The returns that are usually required include:
- Final personal income tax returns (Forms 1040/540)
- Fiduciary income tax returns (Forms 1041/541)
- The federal estate tax return
The federal estate tax return must only be filed providing the gross assets exceed the estate tax exemption that was in effect at the time of death. In such a case, the trustee will also have to file a California estate tax return (Form ET-1), in addition to estate tax returns required by other states in which the decedent held real property or other taxable assets.
It may be difficult for a trustee to determine whether or not an estate tax return is due, particularly when the decedent may own various assets which for estate tax purposes were owned by others. Estate tax rates are high and the penalties for failing to file a return and pay the tax can be substantial. Since any such penalties are likely to be the personal liability of the trustee, the trustee should always consult with a Los Angeles trust litigation lawyer or an accountant who has substantial experience in estate matters, especially when there is any doubt about whether returns need to be filed.
Contact the Law Offices of David A. Shapiro, P.C. for advice and assistance filing the appropriate tax returns.
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