Being named executor comes with a long list of duties, and the tax items sit in the middle of it. Several have clocks that start at the date of death, and a few early decisions (the estate's tax year, whether to file an estate tax return at all) shape everything that follows. Here is the tax side of the first 90 days, in roughly the order it comes up.
Get the estate its own tax identity
The estate is a separate taxpayer and needs its own employer identification number, which you can request from the IRS online with Form SS-4 once you have the death certificate and your appointment as executor. You will need it to open an estate bank account and retitle brokerage accounts. Ask every bank, broker, and payer to report post-death income under the estate's EIN, or you will spend next spring sorting out mismatched 1099s.
File Form 56, Notice Concerning Fiduciary Relationship, at the same time. It tells the IRS that you are authorized to act for the decedent and the estate, so notices come to you. A second Form 56 closes the relationship when the estate is done.
The final Form 1040
The decedent's last personal return covers January 1 through the date of death and is due on the usual April deadline of the following year. You sign it as executor. A surviving spouse can generally file a joint return for that year. Income the decedent had earned but not yet received at death (a final paycheck, accrued interest) is income in respect of a decedent under Section 691 and is reported by whoever receives it, the estate or a beneficiary. Medical expenses paid within a year after death can be deducted on the final 1040 instead of the estate tax return, an election worth considering when there were large end-of-life bills. Capital loss and charitable carryforwards die with the taxpayer, so use them on the final return where you can.
The estate's Form 1041 and its fiscal year
Income the estate earns after death, from interest, dividends, rent, or a sale, goes on Form 1041, the fiduciary income tax return. Most estates that hold investments for more than a few months will file at least one.
An estate may choose a fiscal year ending on the last day of any month within twelve months of the date of death. The choice is made by filing the first 1041 for that period. A well-chosen year-end can push income into a later year for beneficiaries and sometimes let the estate close in a single return. If the decedent had a revocable living trust, the Section 645 election on Form 8855 treats the trust as part of the estate, so it shares the estate's fiscal year and files one combined return instead of two. That election goes in with the first 1041, so it has to be decided before the return is filed.
Step-up in basis and valuations
Under Section 1014, most assets a person owns at death take a new basis equal to fair market value on the date of death. For a house bought decades ago or a stock position with large gains, this wipes out the built-in gain, but only if you can prove the value. Order date-of-death appraisals for real estate and business interests within the first 90 days, and ask brokers for date-of-death valuation statements. If the estate files a 706, it must also give beneficiaries basis information on Form 8971, and those values bind them going forward.
Deciding whether a Form 706 is needed
Form 706, the federal estate tax return, is required when the gross estate plus lifetime taxable gifts exceeds the basic exclusion amount, which the IRS adjusts for inflation each year. It is due nine months after death, with a six-month extension available on Form 4768. Two points catch executors off guard:
- Portability. If the decedent was married, a 706 is the only way to pass the unused exclusion to the surviving spouse. Estates below the filing threshold often file for this reason alone.
- New York has its own estate tax with a much lower threshold than the federal one and a cliff that removes the exemption entirely once the estate is slightly over it. New Jersey no longer has an estate tax but still has an inheritance tax on transfers to certain beneficiaries.
Before distributing anything, consider Form 4810 to request a prompt assessment of the decedent's income taxes and Form 5495 for discharge from personal liability, since an executor who distributes assets and later gets a bill can be personally responsible for it.
A working order for the first 90 days
Get letters testamentary. Apply for the EIN. File Form 56. Open the estate account and redirect income to it. Gather prior returns and statements. Order appraisals. Decide the fiscal year and the Section 645 election with your preparer. Calendar the 706 deadline, even if you expect not to file one. Most of the trouble we see later in an administration traces back to one of these being skipped.