When a Loved One Passes: Understanding Taxes After Death

The death of a loved one brings not only grief but also practical responsibilities. Among them is handling the decedent’s (the person who passed away) tax matters. The rules can feel complex, but knowing what needs to be filed — and by whom — can help you avoid missteps and protect the estate.

If you’re a surviving spouse — or another family member such as an adult child or sibling — you may be wondering what happens next with taxes. Here’s what you should know.

Who Handles the Tax Responsibilities?

A personal representative is typically appointed by a court to manage the estate. This may be an executor (if there’s a will) or an administrator (if there isn’t). Their duties go beyond distributing assets — they also include filing final tax returns and ensuring all taxes are properly paid.

If no court-appointed personal representative exists, the IRS allows another responsible party — often a surviving spouse, trustee, or beneficiary — to file necessary tax returns.

Special Rules for Surviving Spouses

A surviving spouse has unique rights and responsibilities when it comes to taxes after death:

• Final Joint Return (Form 1040): A surviving spouse usually files the decedent’s final return jointly if they had been filing jointly in prior years. This can be done even without being appointed as the personal representative.

• Simplified Filing: In many cases where no probate is needed, the surviving spouse can handle the income tax filings directly.

• Other Returns: For estate-related filings — such as Form 1041 (estate income tax) or Form 706 (estate tax) — a personal representative or executor is generally required.

This distinction is important: while a surviving spouse can take care of the joint final 1040 return, they may not automatically have authority over the estate itself.

When Other Family Members Step In

If there is no surviving spouse, another family member (such as a child or sibling) may step in. Depending on the situation, they could:

• Serve as the court-appointed personal representative (executor/administrator).

• File the decedent’s final tax returns if no probate is required.

• Handle inherited assets that pass directly, such as retirement accounts or life insurance proceeds.

Returns That May Need Filing

Depending on the situation, these filings may be required:

• Final Form 1040 – Reports income earned by the decedent from January 1 up to the date of death.

• Form 1041 (Estate Income Tax Return) – Required if the estate earns more than $600 in income after death.

• Form 706 (Estate Tax Return) – Required if the estate exceeds $13.99 million in 2025, or if portability (transferring unused exemption to a spouse) is elected. Beginning in 2026, the exemption increases to $15 million.

• Form 709 (Gift Tax Return) – May be required for large lifetime gifts in the year of death or unfiled prior years.

• State tax returns – Some states impose estate or inheritance taxes at thresholds much lower than the federal level.

Importantly, if prior-year returns were never filed, they must be completed as well.

Checklist for Surviving Spouses and Family Members

Here are the most common steps you may need to take after the death of a loved one:

• File the Final Tax Return.
  A surviving spouse usually files the final joint return (Form 1040). If there is no spouse, another responsible family member or representative may handle the filing.

• Report Income From Assets You Inherit Directly.
  For example, income from joint accounts, retirement accounts, or life insurance proceeds (if taxable) will go on your return in the year you receive them.

• Know When an Estate Tax Return Is Required.
  If the estate is large (over $13.99 million in 2025, or if portability is elected), Form 706 must be filed — usually by the executor. In 2026, the exemption increases to $15 million.

• Understand the Role of the Personal Representative.
  If the estate earns income after death (from investments, property sales, or unpaid wages), Form 1041 must be filed by the personal representative. If you’re appointed to this role, those filings become your responsibility.

• Gather Important Documents.
  Death certificate, prior tax returns, W-2s, 1099s, bank records, and any estate planning documents (wills, trusts, beneficiary designations).

• Seek Professional Guidance Early.
  Tax rules for estates can be complex — and getting them wrong may create personal liability for the person handling the estate. A CPA can help ensure everything is dealt with correctly.

How Income Is Reported After Death

Income must be divided between the decedent’s final return, the estate, and beneficiaries, depending on when and how it’s received:

• Income received before death → Reported on the final Form 1040.

• Earnings from estate assets during probate → Reported on Form 1041.

• Inherited retirement accounts (like IRAs) → Taxable to the beneficiary when distributions are taken.

• Joint assets or designated-beneficiary accounts → Reported by the survivor or named beneficiary.

Why Planning Ahead Matters

Proper planning can prevent delays, reduce stress for grieving family members, and minimize taxes owed. Some key steps include:

• Keeping wills and trusts up to date.

• Naming beneficiaries on retirement accounts and life insurance policies.

• Maintaining good records of past tax filings and major financial transactions.

• Consulting with a CPA early if a death is imminent or has recently occurred.

Final Thoughts

Administering an estate comes with heavy responsibilities — both personal and financial. Mistakes in tax filings can create liability for the executor or delays for beneficiaries.

At Carlson Hearne CPA, we’ve helped many families navigate this process with compassion and clarity. If you’ve recently lost a loved one — whether a spouse, sibling, or parent — or want to ensure your estate is for the future, we’re here to guide you every step of the way.

Call us at (307) 745-8134 or contact us to schedule a consultation.