Your loved one’s estate may or may not be subject to federal estate tax. Different from an inheritance tax (which is paid by the beneficiaries), estate taxes are levied on your loved one's estate after their passing. Estate taxes are taxes on the transfer of your loved one's property and are paid by their estate before assets can be distributed.
Here are a few examples of some estate related tax considerations you might want to consider in consultation with your tax advisor or attorney:
Does the executor file a final tax return?
Yes, generally the executor of the estate files a final income tax return on the decedent's behalf. Ordinarily, this final return is prepared and filed in the same way as if the person were alive.1
As you’re filing the final tax return, some important tips to remember are: to claim all eligible credits and deductions (like medical bills), report income up to your loved one's death date, and consult your tax advisor or attorney about specific requirements (including potentially noting "deceased" on the return).2 The executor may also want to ensure all prior year tax returns have been filed. If your loved one has previously worked with a tax advisor, they may be able to assist. Conversely, if you're unfamiliar with filing the final income tax return of a deceased person, it's a good idea to consult with a professional tax advisor.
When is an income tax return for the estate is needed?
Under current IRS rules, an income tax return is required if the estate generates more than $600 in annual gross income, and if so, IRS form 1041 (US Income Tax Return for Estates and Trusts) should be filed with the IRS.1 If you need to file a Form 1041, be prepared to answer some questions related to the income, deductions, and gains/losses of the estate. Before you file an estate income tax return, the executor is responsible for applying for a tax identification number (TIN) or employer identification number (EIN) for the estate, which will be used when filing a Form 1041.
For smaller estates or those with assets that may not pass through probate, this may not be a concern. However, again, consulting with a professional tax advisor is always a good idea for help or assistance.
When is an estate tax return required?
Estate tax is imposed on the total value of the decedent’s assets. It’s based on the current fair market value of the assets, not the original value when they were purchased. Examples of assets:
- Cash
- Investment properties
- Personal property (like automobiles and clothing)
- Retirement accounts
In 2026, the tax applies to assets over $15 million ($30 million for married couples). Remember, although the executor is responsible for filing all returns, estate taxes aren't paid by the executor, but from the assets of the estate. Consult a professional tax advisor for help or assistance and an appraiser (if needed) to determine the current value of assets in the estate.
Does your state impose estate or inheritance taxes?
Many states have been phasing out state-level estate and inheritance taxes. Currently, only 12 states and the District of Columbia impose estate taxes, and five states impose inheritance taxes, with Maryland imposing both.3 If you're in one of these states, remember that each state has its own rules for estate taxes and inheritance laws, so consult with a professional tax advisor if you need assistance.