Estate Tax Return Requirements

The passing of a loved one can be a difficult time and the responsibilities of being an executor of their estate can add additional stress.

In Texas, if you have been named as the executor of a decedent’s estate, it is important to understand the estate tax return requirements to ensure that you are in compliance with the law.

What is an Estate Tax?

An estate tax, also known as a death tax, is a tax on the transfer of property from a decedent to their heirs. It consists of an accounting of everything the decedent owned or items they had certain interests in by the date of their death.

Fortunately, Texas does not have an estate tax. This means a tax return does not need to be filed with the state. However, estates may still be subject to federal estate tax. The federal estate tax is based on the value of the estate at the time of the owner’s death.

Who is Responsible for Filing and Paying Estate Taxes?

The responsibility for filing the estate tax return falls on the executor or administrator of the estate. If there is no appointed executor or administrator, then any person in possession of the decedent’s property may be responsible for filing the estate tax return.

If estate taxes are owed, they must be paid within nine months after the date of death unless an extension has been granted. The executor or administrator of the estate is responsible for paying any estate taxes owed.

Determining the Value of the Estate

First, you must determine the value of the estate. This value dictates if the estate is exempt from federal estate tax.

The executor or administrator of the estate must determine the fair market value of all assets owned by the decedent on the date of death. This is the valuation date.

Fair market value is defined as “the price at which property would change hands between a willing buyer and a willing seller when neither party is under compulsion to buy or sell and both parties have reasonable knowledge of the relevant facts.”

This can be calculated by adding together all the property and assets and then subtracting debts and liabilities. This includes but is not limited to:

• Real estate
• Bank accounts
• Stocks
• Bonds
• Annuities
• Personal property
• Securities
• Insurance

Certain assets may have different tax treatment. For example, retirement accounts, life insurance proceeds, and annuities have different tax implications. Therefore, this should be evaluated carefully when determining the value of the estate.

When evaluating personal property, the fair market value of these items is used, not necessarily what you paid for them or what their values were when you acquired them. The total of all of these items is your “Gross Estate.” 

Most relatively simple estates do not require the filing of an estate tax return. A filing is required if the gross estate of the decedent is valued at more than the filing threshold for the year of the decedent’s death, as shown in the table below.

Filing Threshold for Year of Death

The federal estate tax exemption amount for 2023 is $12.9 million per person. This means that estates valued at less than this amount, are exempt from federal estate tax and an estate tax return may not have to be filed.

However, if the estate’s value exceeds the federal exemption amount, a federal estate tax return (Form 706) will need to be filed with the IRS.

Year of Death	If Amount Described Above Exceeds:
2011	$5,000,000
2012	$5,120,000
2013	$5,250,000
2014	$5,340,000
2015	$5,430,000
2016	$5,450,000
2017	$5,490,000
2018	$11,180,000
2019	$11,400,000
2020	$11,580,000
2021	$11,700,000
2022	$12,060,000
2023	$12,920,000

Electing Portability

Portability allows a surviving spouse to use any unused portion of their deceased spouse’s estate tax exemption. This means that if the first spouse dies and does not use all of their estate tax exemption, the remaining amount can be transferred to the surviving spouse.

To elect portability, taxpayers must file an estate tax return within nine months of the decedent’s death. If they miss this deadline, they may still be able to obtain a closing letter from the IRS without filing an estate tax return or requesting an extension.

It’s important to note that while portability can provide significant tax savings for some taxpayers, it is not automatic. It must be elected by filing an estate tax return and meeting all other requirements set forth by the IRS.

Deadlines for Filing

In Texas, the deadline for filing a tax return is 9 months after the date of death. The estate’s representative may request an extension of time to file for up to six months from the due date of the return. However, the correct amount of tax is still due by the due date and interest is accrued on any amounts still owed by the due date that are not paid at that time.

Estate Tax Return Closing Letter

Taxpayers may be able to obtain a closing letter from the IRS without filing an estate tax return or requesting an extension.

A closing letter confirms that all requirements have been met and no further action is needed on behalf of either party involved in transferring assets. It provides peace of mind knowing that everything has been taken care of properly.

Other Tax Returns to File

It is important to note that when a person passes away, their tax responsibilities do not end with their death. The responsibility for filing a deceased person’s final tax return falls on the executor or administrator of the estate. If there is no appointed executor or administrator, then any person in possession of the decedent’s property may be responsible for filing the final tax return.

The final tax return should include all income earned by the decedent up until their date of death. This includes any wages earned from an employer or self-employment income. If applicable, it should also include any income earned from rental properties or investments.

Individuals who are responsible for filing a deceased person’s final tax return should work with a tax professional to ensure that all necessary steps are taken and all requirements are met. Failing to file a final tax return can result in penalties and interest charges.

In addition to filing a final individual income tax return on behalf of the deceased person, it may also be necessary to file an estate income tax return if there is taxable income generated by assets held after death.

The executor must file Form 1041 (U.S. Income Tax Return for Estates and Trusts) to report all income earned by the estate during its administration. Some examples of income-producing assets are:

• CDs
• Bonds
• Mutual funds
• Rental property
• Savings accounts
• Stocks

If the estate generates more than $600 in annual gross income, you are required to file Form 1041, U.S. Income Tax Return for Estates and Trusts. Additionally, an estate may also need to pay quarterly estimated taxes.

The Takeaway

As an executor of an estate in Texas, it is important to understand the requirements for filing a tax return. This includes determining the value of the estate, determining if a tax return is required, and meeting the deadlines for filing. Navigating the complex rules and regulations in Texas probate law can be challenging. If you are unsure of your responsibilities, it is recommended to consult with a probate attorney for guidance.

Our Houston Probate Attorneys provide a full range of probate services to our clients. Affordable rates, fixed fees, and payment plans are available. We provide step-by-step instructions, guidance, checklists, and more for completing the probate process. We have years of combined experience we can use to support and guide you with probate and estate matters. Call us today for a FREE attorney consultation.

Disclaimer 

The content of this website is for informational purposes only and should not be construed as legal advice. The information presented may not apply to your situation and should not be acted upon without consulting a qualified probate attorney. We encourage you to seek the advice of a competent attorney with any legal questions you may have.