Tax-Related Steps When a Loved One Dies

Tax professionals often help clients with difficult and stressful life situations. One example is the death of a loved one. In 35 years as a tax professional, I’ve helped clients navigate the tax related steps to take when a parent, spouse, or sibling dies.

Last week, I learned that one of my tax clients died. In her memory, I am highlighting three tax related steps that family members should take when a loved one dies.

1. Notify Financial Stakeholders

Provide a copy of the death certificate with a cover letter to every bank and investment account, every creditor, and to each of the three major credit bureaus. This action helps to ensure control over assets and liabilities, and prevent unauthorized financial activity. Each organization will have additional steps to complete once they are notified.

2. Obtain a Tax ID and Open a Separate Account

Once the death has been registered with the county and a personal representative has been named, that person can obtain a separate tax ID number and open a separate checking account. A checking account in the name of the estate with a separate tax ID allows the personal representative to deposit funds as assets are liquidated and pay estate expenses.

3. Tax Forms and Filing Requirements

Most estates will not owe income or estate taxes. Tracking all investment or other income that is earned after the date of death, and recording the value of all assets and liabilities of the deceased is essential. That income and net asset information indicates if tax returns must be prepared. The IRS letter granting the separate tax ID indicates when any returns should be filed.

It’s stressful to learn about taxes while you are grieving. Being aware of these three tax-related steps after your loved one dies will help reduce your stress at a very difficult time.