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What tax obligations arise during probate in California?

On Behalf of | Jul 19, 2022

There are numerous legal and financial obligations that arise during estate administration. The personal representative of the estate must notify creditors about probate proceedings and resolve someone’s financial liabilities with estate assets.

They will also need to handle tax obligations before distributing assets from the estate to beneficiaries.  What are the two main forms of taxes that may affect estate administration in California?

Estate taxes

While California does not levy an estate tax, the federal government still does. The estates of those who die in California are sometimes subject to federal estate taxes. If someone’s estate has assets with a value exceeding the exemption threshold, their executor will need to pay estate taxes.

Currently, the overall value of the estate would need to exceed $12,060,000 for federal estate taxes to apply. If the testator did not plan to minimize tax obligations, large estates may have to pay as much as 40% of their total value in estate taxes.

Income taxes

There are two kinds of income tax that apply to estates. The representative of the estate will usually need to file a final income tax return on behalf of the deceased party to resolve any outstanding income tax obligations.

If the estate plan requires an estate sale for the liquidation of certain assets, the estate itself may be subject to income tax requirements. If the estate earns more than $600 in revenue from the sale of assets, the representative will need to file an income tax return and retain enough assets to pay the necessary taxes.

Identifying and fulfilling tax obligations is an important part of modern estate administration.