Taxes and estate administration

On Behalf of | Oct 19, 2021 | Probate And Estate Administration |

As the old saying goes, there is nothing guaranteed in life, except death and taxes. So, it should come as no surprise that death does not avoid taxes, even here in Pennsylvania. Indeed, one’s estate is considered a taxpayer for personal income tax purposes.

What is an estate?

Essentially, one’s estate is an artificial entity that is made up of everything we leave behind when we die. Though, there are two types of estates, a resident and nonresident estate. A resident estate is the estate of a person that died as a resident of Pennsylvania. Whether someone is a resident of our state at death is a legal question that will be determined by a probate judge. And, anyone that is not a resident of our state, but they die in our state or have property in our state, their estate is known as a nonresident estate.

Estates qualify as taxpayers?

Indeed. This means that the estate is required to report and pay income tax, just like any other resident. This is done on the PA-41 Fiduciary Income Tax return. Though, just like a real person, estates can use deductions, like distributions required by state law or a governing instrument, or actual payments or credits to beneficiaries.

Beneficiary taxes

Through a PA-40 Pennsylvania Personal Income Tax return, Pennsylvania residents that receive money as beneficiaries must report that income as separate income. The income received is a different classification for the beneficiary than it was from the source.

Estate administration

For Southampton, Pennsylvania, residents, this means that estate administration is complicated. In addition, to all of the estate documents that one has to take into account as an estate administrator, there are a plethora of laws that must be followed, including state and federal tax laws. This is why many estate administrators and trustees hire outside counsel to help them navigate the system to ensure that all laws are followed.