How to Handle Claims Against Estates

As an executor, it’s your responsibility to settle the estate you’ve been entrusted to administer. An important part of your job is identifying legitimate expenses of the estate and paying those bills in a timely fashion.

One reason for diligence on your part has to do with federal tax rules. If a federal estate return (Form 706) is required, some claims against an estate, such as unpaid income tax or gift tax, are deductions that reduce the amount of estate tax due. In order to benefit from the deductions, the claims must be bona fide, have existed at the date of death, and actually be paid. (For 2013, estates with gross assets of $5,250,000 or more will generally have to file Form 706.)

What happens if you’re unable to measure the amount of a claim against the estate? For example, say the estate is involved in litigation, and you’re not sure of the final outcome at the time the tax return is due.

In that case, you’ll need to file a “protective claim.” The claim, which you attach to the estate return, preserves the ability to take a deduction when an expense is settled and receive a refund of the estate taxes paid.

Contact us for more information about claims against estates and other tax considerations. We’re here to help.