The period following the death of a family member or loved one is an emotional, stressful time. In West Virginia (WV)-and other states-the executor of the deceased's estate shoulders the additional burden of fiscal responsibilities, such as filing a final estate income tax return and sometimes estate tax returns. For anyone facing these responsibilities, it is important to learn about estate taxes in WV, the probate process, and the general responsibilities of the executor.
Assessing Income, Debt, and Estate Taxes in WV and the Wider US
A person's will names the executor, also known as the administrator or personal representative, of the person's estate. When an individual dies intestate, meaning without a will, the probate court appoints someone to serve as the legal representative for the estate during the probate process in WV.
The estate administrator of an estate has the following responsibilities:
- Providing a verified accounting of the estate's assets and debts;
- Making the appropriate payments to creditors; and
- Distributing the remaining assets of the estate to the designated heirs or beneficiaries
The legal representative of the estate is also responsible for filing any final estate income tax return or income estate tax forms that are required.
This article offers general information regarding the requirements of filing a WV or federal estate tax return. However, a probate attorney in the state where you reside can be an extremely beneficial resource for sorting out state and federal laws to identify the necessary steps and best practices related to probate and estate taxes in WV.
The Probate Process in WV
Probate, the legal process of settling the financial affairs of a person's estate, occurs in local probate courts under the jurisdiction and governance of the state. The process generally begins between 30 and 90 days after an individual's death.
The executor named in the will, or the surviving spouse, family member, or attorney representative appointed by the court in cases of intestacy, is responsible for securing any necessary appraisals of property in the estate, requesting creditors' claims for debts, and presenting information regarding the estate's debts and assets to the court. Filing any necessary final estate income tax return documents is also part of the probate process in WV and other states.
Managing Final Individual and Estate Taxes in WV
Once an estate administrator is recognized by the probate court, the court will issue letters of administration, also known as letters testamentary or certificate of appointment, which allow the executor to act on behalf of the estate and the deceased individual. These letters are required for an administrator to be able to file the necessary final estate tax return and other documents required by the Internal Revenue Service (IRS) and the West Virginia State Tax Department.
It is important to note that the estate and the decedent are considered separately for final taxation purposes. It will be necessary for the estate administrator to file a personal income tax form (Form 1040) for the decedent for the final year of his or her life unless that person's income did not exceed the IRS threshold for filing.
Any income received by the decedent after death becomes a part of the estate. This could be income in the form of interest on accounts, stock dividends, rental, or other miscellaneous income. If this gross annual income is more than $600, the administrator must file a final estate tax return for income, the US Income Tax Return for Estates and Trusts (Form 1041).
To file this final estate income tax return, the estate administrator must obtain a federal tax identification number known as an employer identification number (EIN). An Application for Employer Identification Number (Form SS-4) must be submitted to the IRS to obtain this number, which will then represent the estate for tax purposes.
Payment of Additional Estate Taxes in WV
In addition to the individual tax return and the estate income tax return, it may also be necessary for an executor to file a US Estate Tax Return (Form 706). This final estate tax return is necessary only when an estate is large enough-at least $11.4 million in assets as of 2019-to require payment of estate taxes related to the transfer of assets from the deceased to his or her heirs or when a surviving spouse may need the deceased spouses unused exemption (DSUE).
While the federal estate tax does not apply to many estates, there are situations in which the estate's final value is higher than anticipated. One such situation occurs when large gifts were distributed prior to death. If gifts in excess of $15,000 (in 2019) were made to a single recipient, the amount over $15,000 can be assessed as part of the estate.
Life insurance benefits, while usually not subject to income tax, may be considered in the assets of an estate even when the funds are paid directly to the beneficiary of those accounts. This is one of the more common ways an estate unexpectedly becomes subject to the significant 40 percent estate tax rate.
An estate planning and probate attorney in WV, KY, or OH can assist families in planning for the future in a way that avoids such financial surprises.
Additional Considerations and How a Probate Attorney in WV Can Help
There are some exemptions to the requirements and guidelines above. For example, life insurance policy proceeds paid to a surviving spouse who is a US citizen qualifies for the marital deduction and are not subject to estate taxes.
Likewise, filing an estate income tax return may be unnecessary. For example, an estate income tax return need not be filed for assets that do not go through the probate process in WV but instead are distributed directly to a spouse or loved one through rights of survivorship or beneficiary designations. Examples of such assets include real property owned as joint tenants and joint bank accounts.
Filing an estate income tax return in WV, if necessary, is just one part of the puzzle of settling an estate after the death of a loved one. An experienced and caring probate attorney in WV can help families plan for and navigate the identification, assessment, and distribution of an estate's assets.
If you have questions about estate taxes in WV or Kentucky (KY)or otherwise need legal guidance related to end-of-life planning, contact Anna M. Price of Jenkins Fenstermaker, PLLC. An experienced probate attorney, Anna can be reached by phone at (304) 521-2300 or toll-free at (866) 617-4736, or you can complete her online contact form to request a consultation.