Turner Padget Insights
3 Common Tax Situations After Someone Dies
Posted On January 21, 2025
They say nothing is certain except death and taxes, and with the former comes the latter. In South Carolina, when someone passes away, a personal representative is named – typically in a will but sometimes by the court on behalf of the estate. The personal representative oversees the assets through a court-supervised process called “probate.” This individual has the legal fiduciary duty to identify and value the deceased’s assets, pay off any debts, and distribute any remaining assets to the beneficiaries.
The personal representative is also responsible for using the assets to pay taxes for the deceased and the estate. When dealing with taxes after someone passes away, there are three main situations to keep in mind:
Final Income Tax. The last income tax return for someone who has passed away is their final Form 1040. This return covers any income they earned up until their date of death. If there’s a surviving spouse, you can still file a joint return for that year, just as if the deceased were still alive at the end of the year.
Estate Income Tax. Once a person passes, their estate becomes a separate legal entity for tax purposes. If the estate has assets that generate income after death – like rental property income or dividends from investments – a separate income tax return for the estate may be required.
This income is reported on Form 1040 if it exceeds $600 in annual gross income or if a beneficiary is a non-resident alien. Assets like retirement accounts with a designated beneficiary are usually passed directly to the person responsible for paying taxes on any income those assets generate.
Federal Estate Tax. On top of the income tax, there might also be taxes on transferring the deceased’s assets to beneficiaries. While South Carolina doesn’t have its own estate tax, federal estate taxes might come into play, and these are reported on Form 706. Generally, no federal estate tax is due unless the estate is worth more than $13.61 million (for someone who died in 2024), but if it is, a progressive tax ranging from 18% to 40% applies to the value over that threshold.
Because the role of a personal representative involves a fiduciary duty, the individual is held to a high standard and must be careful to avoid potential pitfalls. Failure to perform these duties appropriately can leave the personal representative personally liable for the deceased's unpaid debts and taxes, as well as fines, penalties, and interest.
It’s wise to consult with an attorney experienced in estate and fiduciary tax issues in your state if you're managing an estate. Law firms with a deep understanding of the entire process are able to guide and offer the support of a CPA to ensure you understand your obligations. This way, you can avoid any unexpected tax liabilities down the road.
Jeff Payne is a Florence-based shareholder and a member of our Executive Committee. He devotes his practice to probate litigation, business, construction, business counseling, and transactional work.
