During estate and trust administration, personal representatives and trustees have various financial duties to carry out on behalf of the estate or trust. For example, estate and trust administration requires personal representatives or trustees to file tax returns and pay estate, inheritance, or income taxes. They may need experienced legal guidance about applicable taxes on estates or trusts to fulfill their duties as administrators of an estate or trust.
What Taxes Are Involved in Estate and Trust Administration?
Various tax liabilities may come up during estate or trust administration in Pennsylvania, such as:
- Pennsylvania Inheritance Tax – Pennsylvania imposes an inheritance tax on all estate property located in Pennsylvania transferred to heirs or beneficiaries, with the tax rate determined by the heir’s or beneficiary’s relationship to the decedent – zero percent to surviving spouses or children 21 and younger, 4.5 percent to direct descendants and lineal heirs, 12 percent to siblings, and 15 percent to other heirs or beneficiaries (except tax-exempt charities or institutions).
- Federal Estate Tax – The IRS levies an estate tax on a decedent’s estate that exceeds their lifetime estate and gift tax exemption. Beginning in 2026, an individual’s federal estate and gift tax exemption will increase to $15 million, with future increases tied to inflation.
- Income Taxes – The personal representative of an estate must file the decedent’s final federal and state income tax returns for the year of their death. An estate or trust that generates income, such as through stocks, bonds, or investment real estate, may also have state or federal income tax liability.
The Responsibilities of Personal Representatives and Trustees
Personal representatives of estates or trustees of trusts must file tax returns by applicable deadlines. For example, Pennsylvania inheritance taxes become due upon the decedent’s death and delinquent nine months after their death. Similarly, an estate must file the estate tax return within nine months of the decedent’s death.
A personal representative must file the decedent’s final income tax return by April 15 of the year following the decedent’s death, the exact date that the decedent would have filed their taxes if alive, unless the decedent chose a different tax year than the calendar year.
An estate or trust must file an income tax return by the 15th day of the fourth month after the close of the estate’s or trust’s tax year.
Strategies to Simplify Tax Administration
Personal representatives and trustees can make tax administration easier when managing an estate or trust through best practices such as:
- Gathering necessary financial information and records as soon as possible, and keeping a calendar of applicable filing deadlines
- Hiring professional advisors, such as estate or tax attorneys or CPAs, to manage complex tax filings
- Leveraging tax-saving opportunities, such as distributing trust income to beneficiaries to shift tax liabilities or paying Pennsylvania inheritance taxes promptly to receive a reduction in the tax rate
Common Pitfalls to Avoid
Typical mistakes that personal representatives and trustees should watch out for include:
- Missing filing deadlines or not requesting extensions of time to file
- Distributing assets from the estate or trust before satisfying tax liabilities
- Failing to count or report taxable income generated by the estate’s or trust’s assets
Contact an Estate and Trust Administration Attorney
When you serve as the personal representative of an estate or the trustee of a trust in Pennsylvania, you must file tax returns and pay applicable taxes. Contact Silverman, Tokarsky & Forman, L.L.C., today for an initial consultation with an estate and trust administration lawyer to learn more about the tax obligations for estates and trusts and discuss strategies to manage or mitigate tax liabilities.
