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By: Dr. Joanne Z Moore, PT, DHSC, OCS

Finance

The tax ramifications of having lost a spouse is just about the last thing we care about, but there are actions you need to take regarding your taxes.

Several kinds of taxes may be due shortly after his or her death. During this emotional time, it’s often worthwhile to employ a tax professional to alert you and the family to important deadlines. You can help the tax professional—and potentially save time and money—if you understand what needs to be done.

Income tax
When someone passes away, his or her tax year ends on the day of death. For single taxpayers whose income is large enough, the executor or appointed personal representative for the estate must file a final income tax return by April 15 following the year of death. This tax return will include any income actually received and deductible expenses actually paid prior to death. As a surviving spouse, you can claim a married, filing jointly status in the year of your spouse’s death and treat your spouse’s tax obligations as your own. Additionally, if you remain unmarried and care for a dependent child, you may be able to claim widow or widower status for two years following the year in which your spouse died. In both cases, this tends to result in lower taxes than if you file as single or head of household. You should meet with your tax professional and have them guide you as to which option makes more sense for you.

Fiduciary income tax
After a person has passed away, his or her estate and or trusts are treated as a taxpayer and you must file IRS Form 1041 annually if the deceased’s gross income exceeds $600. It is prudent to obtain taxpayer identification numbers for each entity as soon as possible after one has passed away and provide the numbers to financial institutions holding the estate or trust assets. In other words, you should be meeting with your Attorney or Tax Advisor shortly after your spouse has passed away to make sure that the proper forms are filed with the IRS. Ideally you want to tie up as many loose ends as quickly as possible and minimize the length of time an estate is in probate or the amount of time it takes to be settled and assets distributed to beneficiaries.

Estate and inheritance taxes
Larger estates may be subject to additional taxes. At the federal level, estates with more than $5.25 million in assets may be exposed to estate taxes unless certain deductions apply. For most married couples, an estate transferred to the surviving spouse is completely sheltered and no estate taxes are due. Others will need to pay federal estate taxes within nine months of the death. Most states also apply an estate tax, an inheritance tax, or both. Keep in mind that tax liabilities are not limited to the state of residency. Potentially, the executor may have to file and pay taxes in several states.

Best advice
Don’t pretend to be an expert on tax or legal matters. It is often worth your money to hire an expert to assist you in either tax preparation of probate related matters. Do not hesitate to hire a CPA or Estate Planning Attorney to assist you during this difficult time. We are all experts in different areas – don’t try to be an expert in an area that is unfamiliar to you.

Matthew A. Somberg, AIF®, CLTC® is Principal and Founder of Gottfried & Somberg Wealth Management, LLC. He oversees over $225million dollars of total client assets and maintains offices at 340 Hebron Avenue, Glastonbury, CT and 15 Chesterfield Road, East Lyme, CT. Email Matthew at This email address is being protected from spambots. You need JavaScript enabled to view it. or visit him at www.gottfriedsomberg.com. Securities and advisory services offered through Commonwealth Financial Network, member FINRA/SIPC, a registered investment adviser. This communication is strictly intended for individuals residing in the states of CA, CO, CT, FL, MA, MD, ME, MI, NC, NH, NJ, NM, NY, OH, RI, SC, TX, VA, VI, and WA. No offers may be made or accepted from any resident outside these states due to various state regulations and registration requirements regarding investment products and services.

Finance Q & A

Q
"Finances are what have me stumped. What do I do with money from life insurance? What parts of my income are taxable (gifts, insurances, social security, etc.)? Is it possible to figure things out without hiring an expert?"

A
Proceeds from life insurance are tax free. So it is always nice to have a windfall that does not have income taxes to it. As to what to do with it? Everyone’s situation is different. Typically a funeral and burial cost several thousands of dollars so life insurance proceeds are always helpful to pay off those expenses as well as other outstanding debts. What to do with the money for the long run however is a question that has a different answer for each person based on their particular financial circumstances.

If you typically like to ‘go it alone’ with your own financial planning but are looking for objective feedback, you may want to seek a ‘fee only’ or ‘fee based’ financial advisor who can work with you on an hourly basis to help answer your questions and point you in the right direction without you feeling like you are being sold a product.

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