Kenosha, Wisconsin Fiduciary Tax Lawyer

Attorney Assisting With Filing Taxes for an Estate in Sturtevant and Union Grove

Following a person's death, a wide variety of legal, personal, and financial matters will need to be settled. In addition to distributing assets to beneficiaries, a number of tax issues will need to be addressed by the decedent's personal representative or successor trustee. In these cases, it is helpful to work with an attorney who is experienced in both probate and tax law.

Frozena Law LLC can provide the legal help you need when settling an estate or trust. We will help you fully understand the tax requirements that must be met while guiding you through the probate administration process and helping ensure that your loved one's wishes are carried out correctly.

Filing Taxes as a Fiduciary

A party that acts on behalf of another to manage assets is known as a fiduciary. In estate administration, fiduciaries may include the personal representative (also known as the executor) named in the decedent's will or the successor trustee of a revocable living trust. A fiduciary will need to address some or all of the following tax issues:

• Individual income tax return - A tax return must be filed for the decedent for the year in which they died. This is typically a standard Form 1040, and it will include income earned and any applicable deductions prior to the decedent's death. If the decedent has a surviving spouse, a joint tax return can be filed.
• Fiduciary income tax return - Following a person's death, a tax return must be filed for any applicable income earned by their estate prior to the distribution of their assets to their beneficiaries. This may include dividends earned on any investments or income earned by business interests. Form 1041 is filed for federal taxes, and Form 2 is filed for Wisconsin. The income from non-probate assets, such as real estate that is jointly owned with survivorship rights and payable or transfer on death accounts that are passed directly to beneficiaries, are not included on the fiduciary income tax return, but they are included on the estate tax return, if filed.
• Estate and gift taxes - Estates of a certain size may be subject to federal or state estate taxes, in which case an estate tax return must be filed. Currently, the federal estate tax only applies to very large estates; in 2019, estates with a value less than $11.4 million are excluded from estate taxes. However, that amount may be lower if the decedent made taxable gifts during life and applied a portion of that $11.4 million to those gifts.
• Estate tax return for portability – Even if the decedent's estate is not large enough to require the filing of an estate tax return, a return must be filed if the surviving spouse may want or need to take advantage of portability upon his or her death. Since 2011, a married couple has been able to "port" the unused estate exemption of the first spouse to die to the surviving spouse to use at his or her death. However, in order to port the available exemption, known as the deceased spousal unused exemption (DSUE), an estate tax return must be filed upon the death of the first spouse, whether or not it would be required otherwise.
• Life insurance - Death benefits from the decedent's life insurance policy are typically not subject to income taxes for the beneficiaries (interest earned on the death benefit after death and before distribution is subject to income tax). However, the amount of the life insurance payout is included in the value of the decedent's estate. If this causes the value of the estate to exceed the estate tax threshold, the amount in excess of the threshold will be subject to the federal estate tax.

State Law Considerations

Even though Wisconsin does not currently have a state estate or inheritance tax (a tax paid by the recipient/beneficiary), other states do have these types of taxes, and the thresholds for filing vary. If the decedent has property in a state with an estate tax, and the value of the property is high enough, it is possible that a state estate tax return may need to be filed and taxes paid, even if federal estate taxes are not due.

Additionally, some states seek to tax the income of trusts administered in another state if a beneficiary of the trust or a trustee of the trust is a resident of that state. The fiduciary must be aware of where trust beneficiaries live and receive competent advice on where state income tax returns will need to be filed.

Gift Tax

Even though gift tax returns are usually filed during an individual's life, it is important for the personal representative or successor trustee to determine if a decedent ever filed a gift tax return and obtain copies of those returns. The gift tax and estate tax share a lifetime exclusion or unified credit ($11.4 million in 2019), so the amount of lifetime exclusion available at death may be reduced by previous gifts made.

A key number to be aware of is the annual gift exclusion, which is $15,000 as of 2019. This is the amount one individual can give to another in a calendar year without needing to file a gift tax return. A gift over that amount will be taxable and require the filing of a gift tax return (Form 709) unless it falls within an exception. Two notable exceptions to the annual exclusion are the education exclusion and medical exclusion. With these exclusions, an individual may make direct payments for tuition or medical care on behalf of another individual to a qualifying educational institution or medical care provider, respectively, without using the annual exclusion or any unified credit.

Contact a Racine Tax Attorney

The requirements that must be followed by a fiduciary following a person's death can be complex, and it is essential to ensure that all tax returns are completed correctly to avoid any potential penalties. Frozena Law LLC can provide assistance with these tax forms and help ensure that all other issues related to probate and trust administration are handled correctly. Contact our office at 262-237-8668. We provide estate administration and tax filing services in Kenosha, Pleasant Prairie, Sturtevant, Lake Geneva, Union Grove, Bristol, Racine, and Burlington.