Dealing with the loss of a loved one or a business owner can be an overwhelming and emotional experience. While you may be struggling to come to terms with your loss, there are several important steps to ensure that the necessary financial arrangements are made. Some of these steps need to be done right away while some of them can wait. It is important to understand that there are important financial implications that arise when dealing with the loss of a loved one.
Gather Documentation
One of the first and most important steps is to obtain the death certificate. You will need this when it comes to most of the financial and tax related tasks. Typically, people will have a trust set up that contains all their assets. The documents regarding this trust should be gathered as well. The next step is to provide these documents to the CPA. The death certificate should also be given to the CPA to make sure the individuals final year return is completed. Any of the individual’s income up until they die will be recorded on their final year return. All their income after they die will be recorded on the trust or estate’s income.
The next step is to determine if any estate taxes are owed. If the individual has an estate worth more than 12 million dollars or 24 million dollars if they are married, then the amount over will be taxed. Some states also have estate taxes. More information can be found about estate taxes under our blog section of our website.
Notify The IRS
Notifying the IRS is also important. Filling out Form 56 will notify them of the individuals death. This lets the IRS know who will be handling the individuals tax affairs. After this step someone needs to determine if any taxes are owed on retirement accounts. If the account is inherited by a spouse, then the taxes may be deferred. Most of these steps can be completed by the CPA. Then certain tax deductions can be claimed by the individual’s estate. Some of these deductions could include medical expenses, charitable expenses, and business expenses. A tax professional will be able to determine which are available in your case. If there are any taxes that are owed, then they need to be paid by the individuals estate. If the estate does not have sufficient funds, then the heirs may be responsible for paying them.
Identify the Executor or Trustee
One of the most important things is to sit down with the trustee or executor of the will to make sure the trust or will is executed as the individual intended.
When They Are A Business Owner
While all this is the case for when an individual dies, sometimes they are a business owner. This involves more. Certain business types have different outcomes, but we will talk about partnerships first. In partnerships they may already have an agreement in place where the remaining partners get the first choice to buy out the shares from the individual. If not, then the trust or will may specify who should assume control of the shares. The shares of the company will automatically be brought up to fair market value. If the business is a corporation or an S corporation, the estate becomes the new owner of the business. In this case then an estate tax return needs to be filed. If the business is an LLC, then it is required to have an operating agreement that will discuss the circumstances.
Overall, there are many tax related things to be aware of when handling the loss of a family member or business owner. Documentation is a very important piece of the puzzle and making sure you get all of it to the CPA. If you have any questions related to this or other tax problems, then reach out to us today. Click the link below to get started.
