Tax tips for effective estate administration

Many clients turn to irrevocable or revocable trusts as a strategy for minimizing probate expenses. Yet a comprehensive estate plan often combines trusts with a will. For that reason, it's wise to understand how to most effectively administer an estate through probate.

First, an inventory of assets may be required to determine if an estate is below the federal estate tax exemption of $5.43 million for tax year 2015. In addition to determining the estate's tax liability, the decedent's final income tax return (IRS Form 1040) will also have to be filed by the annual Tax Day deadline on April 15.

The individual named as the executor in the decedent's last will and testament might take responsibility for handling any tax issues of the decedent and the estate, although a surviving spouse or another relative or family member could also perform the role. A word of caution, however: the task shouldn't be taken lightly, as failing to properly handle an estate's tax issues could subject the executor or administrator to personal liability with the IRS.

There may be advantages to having the same individual determine the tax liabilities of the decedent and the estate. For example, accrued medical expenses above a certain threshold of the decedent's adjusted gross income may be deductible. Yet it may be more advantageous to apply that deduction to the estate's tax return, to the extent that one is required. The estate-tax rate may be as high as 40 percent, whereas the decedent's individual tax bracket could be much lower.

Source: Market Watch, "4 tax issues to consider when you close an estate," Bill Bischoff, Feb. 17, 2015