The executor or personal representative of an estate can uphold an individual’s last wishes. They can help protect the beneficiaries or heirs who might inherit from the estate. Their efforts can provide support and comfort to those who have recently lost a loved one.
Unfortunately, estate administration does come with a degree of risk. The personal representative is a fiduciary who must act in the best interests of beneficiaries while following estate planning instructions and the law. Mistakes and oversights could have dire financial consequences for the personal representative.
For example, the failure to fulfill financial obligations could lead to personal liability. A personal representative likely needs to use estate resources to cover debts and tax obligations. An estate may owe income taxes, and the personal representative could be responsible for those taxes if they do not manage estate resources properly.
The sale of assets generates income
Estate administration often requires the sale or liquidation of estate resources. The will left by the decedent might require the liquidation of assets in some cases. Other times, a personal representative must sell assets to divide their value fairly.
If the sale of estate resources generates $600 or more in revenue, the personal representative must file an estate income tax return. Given that estate administration may last for a year or longer, there is the potential for the estate to owe income taxes for more than one fiscal year. Personal representatives may need help estimating tax responsibilities and ensuring that they fulfill all of their obligations.
Having support throughout estate administration reduces the legal and financial exposure of the fiduciary managing an estate. Personal representatives who properly handle tax obligations benefit from a minimized risk of personal financial consequences.
