In addition to navigating the court system, marshaling the deceased’s assets and dealing with creditors, the personal representative must contend with various tax issues in probate. While Oklahoma abolished its estate tax beginning in 2010 and most people are no longer subject to federal estate taxes, income and capital gains taxes still come into play.
The personal representative is responsible for filing the deceased’s final state and Federal personal income tax returns with the Oklahoma Tax Commission and the Internal Revenue Service, respectively. What’s more, the estate itself might be liable for income taxes if it generates income (from rents, profits, dividends and interest) in excess of $600 while the probate case is open. In such event, the personal representative is required to file Form 1041 with the Internal Revenue Service. The deceased’s probate estate may also incur capital gains taxes assuming certain property sales. Distributions from the probate estate to the deceased’s heirs and to beneficiaries under a last will and testament are generally taxed to and reported by the heirs and beneficiaries on the heirs’ and beneficiaries’ tax returns.
Ensuring that all taxes are properly paid and reported is paramount for the personal representative in a probate case. Along with an attorney, it is prudent for the personal representative to consult an accountant (preferably, the deceased’s accountant).