A friend has asked for some help in understanding what to expect related to taxes for a relative who passed away last year, where he is the responsible person. I don’t have full knowledge of exactly what took place last year, but the general outline. So I thought I’d see if I could lay out some questions to help my understanding.
Basic situation – His sister passed away early in 2022. Not married and no will. He was the heir as her sole sibling. She left some possessions (home, possessions) and a traditional IRA. The IRA had no designated beneficiaries (or perhaps a designated beneficiary had deceased).
He worked with an attorney to do probate. This is in WA state, and he became the personnel representative as well as sole heir. Probate was initiated last year and I assume has closed, but don’t know that.
My understanding (guess) is that home and possessions were passed to the “estate” (he established an EIN for the estate). The home was sold and through probate, presumably, he received the proceeds. Other possessions were similarly either sold or given/thrown away. The IRA balance at a broker (let’s say $100,000 just for discussion here) was transferred to the estate. The IRA was fully “distributed” with 20% federal tax withheld, with the net proceeds eventually going to my friend through probate (I presume). He understood there may have been an option to spread that out over some years, but chose to take the full distribution.
The broker sent a 1099-R for the IRA distribution, showing the balance and taxes withheld. The “Recipient’s TIN” was the EIN for the estate. So it seems the IRA was distributed to the estate, with taxes withheld, and then through probate the net proceeds went to my friend. But that’s my layman’s description/understanding.
On the taxes … my friend has an appointment with a local IRS office to discuss things. He’s not sure what prior tax years have been filed (2021 was certainly not filed); they’ve guided him to file a Form 56 before coming in to authorize access to her tax information. Some questions:
– I assume he’ll have to file a 2021 individual return for her. He’s going to have to figure out how to get information on that. The brokers/banks he knows about may be able to provide 1099s previously sent? Does the IRS provide such information that has been sent to them?
– I assume he may have to file an individual tax return for the first part of 2022, assuming there were some dividends/interest in taxable accounts (not sure).
– What is the effect of the IRA distribution to the estate, with eventual transfer to him as the heir of the estate? Does that distribution feed into his personal tax return, even though the 1099 shows it going to the estate’s EIN? Is there an “estate income tax return” instead? (I see a Form 1041 exists for estate tax returns, but that seems to be when true estate taxes are due for large estates, which this is not).
– I assume the sale of the home should not be a tax issue, since the basis should jump at the date of death to then current value?
That’s enough for now. Appreciate any thoughts, but especially on the taxation of the IRA distribution.