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How Are Taxes Handled in California Probate Cases?
December 17, 2022
Probate in the State of California is a lengthy, expensive, and confusing process, but an Elk Grove probate attorney will guide you and your loved ones through a probate proceeding while protecting your best long-term interests and your legal rights under California law.
After someone dies in California, the probate process ensures that person’s outstanding taxes and debts are paid and that his or her remaining assets are transferred to the beneficiaries (or, if there is no will, transferred according to California’s intestate succession rules).
How does probate work in California? How are a decedent’s taxes handled? When should family members contact an Elk Grove probate lawyer? If you’ll keep reading this short introduction to probate and taxes in California, you will find the answers you may need.
However, if you become the executor of someone’s will in this state, if you become an estate’s personal representative, or if you are named as someone’s beneficiary, you may also need the personalized legal advice and services that a Sacramento-area probate attorney can provide.
During Probate, Who Acts on a Decedent’s Behalf?
If a decedent has left behind a will, the individual who has been named as the will’s executor is usually also named by the probate court as the “personal representative” of the decedent’s estate.
In California, personal representatives are legally responsible for managing estates during the probate process, but a will’s executor does not have the legal authority of a personal representative until that appointment is made by the probate court.
For state and federal tax purposes, an individual’s death in California:
1. closes the decedent’s last income tax year
2. establishes a new legal entity, the decedent’s “estate”
What May Be Required for an Estate’s Federal Taxes?
If you are designated as the personal representative of an estate, for federal taxes, you may be required to complete and submit one or more of these IRS forms. The specific forms that are required will depend on a decedent’s income, the estate’s income, and the estate’s value:
1. 1040 Income Tax return (a decedent’s personal tax return)
2. 1041 Fiduciary Income Tax return (for the decedent’s estate)
3. 709 Gift Tax return(s)
4. 706 Estate Tax return
What May Be Required for an Estate’s California Taxes?
For state taxes in California, the personal representative of an estate must file any required:
1. California income tax return
2. California fiduciary income tax return
3. California estate tax or gift tax returns
Additional outstanding taxes may include local personal property and real estate taxes, business taxes, and any other special state taxes. An estate’s personal representative should also make sure that all taxes have been paid for the years immediately prior to a decedent’s death.
What Else Should a Personal Representative Know About Taxes?
An estate’s personal representative may need to file income tax returns for both the decedent and for the estate. The personal representative must file all tax returns that are due and pay all taxes that are outstanding.
As a personal representative, you may personally become liable for tax payments if you fail to pay due taxes, fail to meet tax deadlines, or fail to take reasonable efforts to determine if the estate has additional tax obligations.
A personal representative’s duties are complicated. If you become an estate’s personal representative in or near the Sacramento area, you should have – from the very beginning of the probate process – the legal advice and services that an Elk Grove probate attorney offers.
What if You Avoid Probate by Establishing a Trust?
In California, your loved ones can avoid the probate process after your death if you establish a living trust. You’ll need to prepare that living trust document (similar to a last will and testament) with the advice and guidance of an Elk Grove estate planning lawyer.
However, avoiding the probate process doesn’t mean that your estate can avoid paying taxes. In this sense, taxes and probate are entirely unrelated. The State of California and the IRS do not care whether or not your property goes through probate court.
How Does a Living Trust Work?
If you establish a living trust, you will transfer ownership of your assets and properties to the trust, name yourself as the trustee, and designate someone else to oversee the trust as your “successor trustee” when that time comes.
For probate purposes, any assets or properties that you move into the trust become the trust’s legal property. Upon your death, your successor trustee will pay the estate’s taxes and debts and transfer what remains directly to your beneficiaries, without interference from a probate court.
If you do not take measures to avoid probate, and your estate is modest, your estate may qualify for California’s simpler “small estate” probate process. A probate attorney can review the details of your estate and discuss with you the options that are available.
When Should You Contact a California Probate Attorney?
In California, if the value of an estate exceeds $184,500, or if the estate owns real property (such as a house, a condominium, or a business property) with a value that exceeds $61,500, then the estate must go through the probate process.
An Elk Grove probate lawyer will handle the complete probate administration process on behalf of the executor or the personal representative of an estate, including:
1. filing the probate petition
2. appearing in probate court
3. handling creditor claims
4. managing the sale of real estate
5. distributing assets to beneficiaries
6. closing the estate
In most cases, probate is merely paperwork. A probate attorney completes the paperwork, meets the deadlines, and satisfies the other probate requirements. If nothing is in dispute, a probate attorney’s courtroom skills may not be needed.
What Should You Know About Probate Disputes?
However, if a dispute emerges over a family member’s estate, you must be represented by a probate lawyer who will defend your rights and protect your interests.
Probate disputes can be lengthy, complicated, and contentious. They can damage a family and reduce an estate’s value. These disputes may include:
1. disagreements over who should be the estate’s executor
2. disagreements among the beneficiaries of a will or a trust
3. “intestate succession” issues if someone dies without a will
Probate in California entails a number of time limits and deadlines, so any failure to act swiftly may be a costly mistake. Your probate lawyer will see to it that you are treated fairly throughout the probate process and that your rights and interests are aggressively and effectively protected.
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