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How IRS changes may affect probate administration

Estate executors may not be familiar with the obligations they are saddled with in administering the estate of a loved one. Indeed, the responsibilities center on making sure that all debts and liabilities are paid before property is distributed. Depending on the size of the estate, one of the largest obligations could be estate taxes.

For the uninitiated, it is important to know that estates valued at $5.43 million or more are subject to a federal estate tax. However, there are a number of applicable deductions that could lower the taxable value of the estate so that steep federal estate taxes will be pushed to the waste side.  

Even if estate taxes ultimately don’t apply, a tax return is required on every estate that goes through probate. However, one troubling procedural hurdle may be obtaining the closing letter that informs the representative that all federal tax obligations (if any) have been satisfied. Closing letters are commonly produced automatically when the review of an estate tax return is completed.

However, since January 2016, an IRS policy change has made getting closing letters more difficult. Instead of receiving automatic closing letters, the IRS now only provides them upon request. This move ostensibly was made to give the IRS ample time to review the order to ensure that proper deductions were made. Of course, if mistakes were made that artificially reduced the value of the estate, the IRS could make special assessments to collect the taxes due.

If you have questions about how this change may affect the administration of an estate you are administering, an experienced probate law attorney can help. 

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