Estate Income Tax

The Executor (or other person charged with the decedent’s property) must file the final tax return for a decedent. This final return is due the year following the date of death. For deaths in 2013, the final return would be due in 2014; provided however, if the decedent did not file their return (which would be likely if the person died in January or February), the Executor must also file the previous year’s return.

In addition to the income realized prior to death, the Executor is also responsible for filing the income taxes after the date of death. This would be on a 1041 and would be for the period following the decedent’s death if that income is above $600.00. Here is a link to the IRS instructions on 1041 filings.

Here is an example: John dies on May 30, 2013. The Executor must file John’s 1040 (as well as any state or local taxes) for the income received from January 1, 2013 – May 30, 2013.  For income received by the Estate after the date of death, the Executor must file a 1041 for the Estate (June 1, 2013 – December 31, 2013).

Estate Tax Law Update for 2013

Federal Estate Tax and Ohio Estate Tax Law

Ohio Estate Tax

Governor John Kasich signed in to law, on July 2, 2011, a full repeal of the Ohio Estate Tax. This repeal took place and is effective after January 1, 2013. For those who died in 2011 and 2012, there will still be an Ohio Estate Tax.

For those individuals who died prior to January 2013, the Estate Tax rate in Ohio is 6% on assets above the $338,333.33 exemption, up to $500,000, and a 7% tax on assets above $500,000.00.

Federal Estate Tax

For 2013, each individual has an effective credit of approximately $5 million. The new Federal Estate Tax rate for 2013 will be 40% for assets above the credit.

There is also a concept known as Portability. This allows a spouse to transfer all assets to the surviving spouse, pay no tax at the first spouse’s death (there is an unlimited marital deduction which results in no Federal Estate Tax for assets given to a surviving spouse), and transfer the $5 million dollar credit to the surviving spouse.

One requirement for transferring the credit to a surviving spouse is that a Federal Estate Tax Return must be filed after the first spouse’s death. Further, there are restrictions on the transfer of this credit in subsequent marriages.