How to Close Down an Estate

By eHow Personal Finance Editor

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If you have been named as the executor of an estate, then you have a hard job ahead of you. In addition to mourning the loss of someone you were likely quite close to, you now have the added burden of dealing with their final taxes and the distribution of their estate as outlined in their will or trust. This can be a taxing job, and a thankless one at that, but it is something that must get done. Read on for the steps needed to settle your loved one’s estate.

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Instructions

Difficulty: Moderately Challenging

Things You’ll Need:

Internet access
Tax information

Closing an Estate

Step1

File the final 1040 income tax.

Step2

File estate tax if necessary. Pay attention to your loved one’s medical debt, as this can be deducted from the value of the estate for the purposes of taxes due. Also check with the state of residence to see if death taxes are owed.

Step3

File form 1041 if the income of the estate itself generates $600 or more of income before it is closed. You may want to hire a tax professional to ensure you don’t miss anything.

Step4

File form 706 if the value of the estate is $2 million or above. The exact method for calculating this value is available on the IRS Web site.

Step5

If you have to file Form 1041 or Form 706, you will have to fill out Form SS-4 to get an EIN (making the estate an employer) and then file Form 56 to let the IRS know you are handling the tax matters of the estate. This ensures that you get IRS notices directed for the estate.

Step6

Open a checking account in the name of the estate with some funds from the estate itself to deal with expenses like funeral bills as well as taxes and to accept interest from the estate. You will need the EIN on hand for this purpose.

Step7

Distribute the assets of the estate in accordance with the Will once the taxes and debts are settled.

Tips & Warnings

Hire professional tax help to keep yourself from going crazy.
Estate taxes can take almost half the value of the estate away from family. Hire professional help if you find that the estate will owe estate taxes.