Estate administration involves using estate planning documents or state law to guide the distribution of property. The personal representative of an estate has to fulfill the deceased individual’s financial obligations.
They also need to either abide by the instructions provided in estate planning documents or defer to intestate succession rules regarding property distribution. The obligations a personal representative must fulfill typically include certain tax responsibilities.
Personal representatives may face a much more complex tax season during and after estate administration. What tax complications may arise because of probate proceedings?
1. Income tax issues
Personal representatives don’t just need to file a tax return for themselves as they usually do. Frequently, they also have to file a final income tax return on behalf of the deceased individual.
In scenarios where estate planning instructions require the sale of estate resources, the estate itself may also require an income tax return. Personal representatives must be proactive about fulfilling these obligations or risk financial consequences.
2. Estate tax concerns
If an estate is particularly large, it may be subject to federal estate taxes. There is an exemption threshold that limits estate taxes to eight-figure or larger estates.
As of 2025, the threshold for estate tax exemption is $13.99 million. Any estate with a value over that threshold is potentially responsible for federal estate taxes. The personal representative may need to retain anywhere from 18 to 40% of the overall estate value to cover those tax obligations.
3. Capital gains taxes
Beneficiaries of the estate who inherit property like real estate may have tax issues to consider as well. Those who sell or transfer assets that have significantly appreciated in value may have to cover capital gains taxes. Capital gains taxes can be difficult to calculate and can create a significant financial burden for those inheriting property that has appreciated significantly in value.
Personal representatives overseeing probate proceedings often need help planning for potential tax complications. Not only do they need to address their own liability and estate concerns, but they may also need to provide financial records and support to beneficiaries. Understanding the potential tax complications associated with estate administration can help personal representatives fulfill their financial obligations.