When Can Estate Assets Be Distributed?

Home » Blog » When Can Estate Assets Be Distributed?
Posted on: March 17, 2022 | by: Graber & Johnson Law Group, LLC
Many estate executors focus on estate taxes and forget about income taxes. That can be an expensive mistake.

Just as an individual pays taxes, so do estates. An estate is required to file an annual income tax return for each calendar (or fiscal) year it is open, even if only for part of the year. This is in addition to the estate tax return and the decedent’s final tax return, explains a recent article “The Dangers Of Distributing Estate Assets Too Soon” from Forbes.

The estate tax return is based on the assets in the estate, the income received and deductible expenses paid during the calendar year. Only one estate tax return is required. However, as long as the estate is open, an annual estate income tax return needs to be filed.

To minimize income, many executors distribute income to beneficiaries shortly after it comes into the estate. The estate takes a deduction for the income distributed to beneficiaries in the same year it is received by the estate. Beneficiaries are required to include the distribution in their gross income.

However, if the estate does not distribute income before the end of the year, the estate will owe income taxes. There are further complexities to be aware of, including what happens if an executor receives unexpected income or does not know the tax impact of certain transactions. The estate has to pay taxes, but what happens if all assets have been distributed?

The estate still owes those taxes.

The executor may be personally liable for paying the taxes.

If some of the expenses the estate pays are not deductible, but the executor thinks they are, then the estate will have an income tax liability, possibly without the cash to pay it.

The estate often receives property taxable as income if it is not distributed to beneficiaries, like a stock dividend. The estate receives the stock, and its taxable income based on the value at the date of the distribution.

If the estate does not distribute the stock to beneficiaries until later in the year and the stock’s value declines, the estate is still required to recognize the income equal to the stock’s value on the date it was received. If the executor deducts the lower value of the stock, then the estate will be liable for the income tax on the difference.

In some cases, these kinds of issues can be prevented by maintaining a certain level of cash in the estate account until the final estate tax return is filed. The beneficiaries receive distributions once all of the taxes—estate income, estate and final individual or final joint—are paid.

For larger or more complex estates, it is wise to have a tax discussion with the estate planning attorney, the family CPA and the executor, so all parties are prepared for tax liabilities in advance.

Reference: Forbes (Feb. 16, 2022) “The Dangers Of Distributing Estate Assets Too Soon”

Read Our Blog

Estate Planning Articles

Our daily blog discusses issues pertaining to Estate Planning, Probate Administration, Special Needs Planning, and Elder Law / Medicaid.
Read Our Blog

Join Our eNewsletter

Join Our eNewsletter

Each month we send an e-newsletter covering issues of Estate Planning. We also have subscriptions available for our bi-monthly Elder Law e-newsletter and weekly Business Planning e-newsletter.
Subscribe Now!

Request an Initial Consultation

Schedule a Time to Meet Our Team Today

Graber & Johnson Law Group, LLC is devoted to serving clients in the highly specialized areas of estate and business planning. Book a time to meet the Graber & Johnson Law Group Kansas Estate Planning Law Firm.
Request a Consultation

Have Questions?

If you have a a question, a comment, or simply want to have a conversation and explore how we can help, we’d love to hear from you.
Request a Consultation Now

Office Locations

Manhattan Office

714 Poyntz Ave., Suite C
Manhattan, KS 66502

Directions

Hugoton Office

517 S. Main St.
Hugoton, KS 67951

Directions

Elkhart Office

701 Vilymaca St., PO Box 450
Elkhart, KS 67950

Directions

Hutchinson Office

517 E. 30th Ave., Suite B3
Hutchinson, KS 67502

Directions

Garden City Office

1501 E Fulton St.
Suite 3
Garden City, KS 67846

Directions

Norton Kansas Office (Appointment Only)

201 E Holme St.
Norton KS 67654

Manhattan Office

714 Poyntz Ave., Suite C
Manhattan, KS 66502

Get Directions
Hugoton Office

517 S. Main St.
Hugoton, KS 67951

Get Directions
Elkhart Office

701 Vilymaca St., PO Box 450
Elkhart, KS 67950

Get Directions
Hutchinson Office

517 E. 30th Ave., Suite B3
Hutchinson, KS 67502

Get Directions
Garden City Office

1501 E Fulton St.
Suite 3
Garden City, KS 67846

Get Directions
Norton Kansas Office (Appointment Only)

201 E Holme St.
Norton KS 67654

Get Directions
Integrity Marketing Solutions - Estate Planning Marketing
Powered by
selectcrosschevron-down