What taxes will an executor have to pay during probate?

The Arizona probate process can be somewhat demanding. The executor or personal representative of someone’s estate has to provide the courts with documentation like the actual will and basic financial records. They need to notify creditors, settle accounts and distribute assets.

An executor will also need to fulfill the final tax obligations of the deceased individual and their estate. There are actually three different kinds of taxes that an executor may have to consider during estate administration.  

Income tax

Even if the deceased person no longer earned employment income at the time of their death, their executor will usually still need to file a final tax return on their behalf. The estate itself could have income taxes if the executor sells property and produces more than $600 in income.

Estate taxes

Although Arizona does not assess an estate tax, the federal government may. If the assets in the estate are worth $12 million or more, then federal estate taxes may apply. They could consume as much as 40% of what the estate is ultimately worth. 

Capital gains taxes

Although responsibility for this tax will generally fall to beneficiaries and not the executor, it’s important to recognize that certain transfers could trigger major taxes for the recipients of assets from the estate. Letting someone know about their potential tax risks early in the estate administration process can help them plan to cover those taxes when they receive their inheritance.

By proactively addressing tax issues, you can protect yourself and limit your risk as the executor managing the probate process.