Determine need for an accountant
When someone dies, their estate needs to be settled. This can be a difficult process because it involves both financial and tax matters.
For this reason, it is often helpful to hire a certified public accountant (CPA) to assist with settling the estate and taking care of probate accounting.
CPAs are not required by law, but they can help the executor, administrator, or surviving family ensure the estate is handled properly.
For instance, accountants can help locate and identify complex assets, reduce or avoid taxes, and ensure taxes are filed correctly.
It is best to choose an accountant who specializes in estate settlement and estate tax practices. This accountant should be licensed in the state where the deceased lived because they will need to be familiar with local laws and procedures.
Important
Accountants are typically paid by the estate, not by surviving family members or the executor.
Review the questions below to identify the likelihood of needing to hire an accountant for the estate.
Helpful Tips
Examples of complex assets
Complex assets involve many steps to transfer from one person to another and they may not be “liquid.”
Liquid assets are assets that can easily be converted to cash in a short amount of time.
Common complex assets include:
- Real estate
- Closely-held business or restricted stock
- Partnership or LLC interests
- Mutual funds
- Commodity interests
- Intellectual property
- Royalties
- Existing trusts (dynasty or legacy trusts)
- Insurance
Types of complex assets and debts
It is more likely that the estate will need to hire an accountant to assist with the distribution of complex assets or payment of complex debts.
Assets might be complex if:
- They are hard to locate or identify
- It is difficult to determine their value
- They are difficult to collect (such as accounts receivable or other debts owed to the deceased)
- They are spread across multiple financial holdings (multiple properties, investment accounts, hedge funds, multiple businesses)
- The deceased kept poor records of their assets
- The deceased’s heirs are fighting over which assets should be given to whom
Debts might be complex if:
- They are hard to locate or identify
- It is difficult to determine how much is owed
- The estate is unable to pay its debts (the debts out value the assets)
- The deceased kept poor records of their bills and debts
If faced with either complex debt or asset issues, contact a CPA who specializes in estate settlement in the state where the deceased lived.
State inheritance tax rules
Some states tax a beneficiary’s inheritance for any assets they receive from the deceased’s estate.
While every state applies their own rules when it comes to inheritance taxes, most states only require that beneficiaries who are not immediate relatives of the deceased pay inheritance taxes.
Review the inheritance tax rules for the state where the deceased lived to determine if inheritance taxes must be paid.
Personal Considerations
Are the deceased’s assets and debts complex?
It is more likely that the estate will need to hire an accountant to assist with the distribution of complex assets or payment of complex debts.
Assets might be complex if:
- They are hard to locate or identify
- It is difficult to determine their value
- They are difficult to collect (such as accounts receivable or other debts owed to the deceased)
- They are spread across multiple financial holdings (multiple properties, investment accounts, hedge funds, multiple businesses)
- The deceased kept poor records of their assets
- There are disputes among the surviving heirs over how to divide assets
Debts might be complex if:
- They are hard to locate or identify
- It is difficult to determine how much is owed
- The estate is unable to pay its debts (the debts out value the assets)
- The deceased kept poor records of their bills and debts
Providers
If faced with either complex debt or asset issues, contact a CPA who specializes in estate settlement in the state where the deceased lived.
It may be simpler to settle the estate without the need to hire a CPA as long as the assets and debts are easy to identify, locate, and value.
Review the other questions in this section to see if any other situations might require the assistance of a CPA.
It is more likely that the estate will need to hire an accountant to assist with the distribution of complex assets or payment of complex debts.
Assets might be complex if:
- They are hard to locate or identify
- It is difficult to determine their value
- They are difficult to collect (such as accounts receivable or other debts owed to the deceased)
- They are spread across multiple financial holdings (multiple properties, investment accounts, hedge funds, multiple businesses)
- The deceased kept poor records of their assets
- There are disputes among the surviving heirs over how to divide assets
Debts might be complex if:
- They are hard to locate or identify
- It is difficult to determine how much is owed
- The estate is unable to pay its debts (the debts out value the assets)
- The deceased kept poor records of their bills and debts
Providers
If faced with either complex debt or asset issues, contact a CPA who specializes in estate settlement in the state where the deceased lived.
It may be simpler to settle the estate without the need to hire a CPA as long as the assets and debts are easy to identify, locate, and value.
Review the other questions in this section to see if any other situations might require the assistance of a CPA.
Will the Estate face estate, inheritance, or gift taxes?
The estate is more likely to need the assistance of a CPA.
Estate, inheritance, and gift taxes are affected by both state laws and federal laws.
Federal estate taxes apply to estates with a value of $12.06 million or more (for a single person) or estates with a value of $24.12 million (for married couples).
IRS rules and regulations specify which types of assets and debts are included in the calculation of an estate’s value.
If the deceased’s estate qualifies for federal estate taxes, a CPA will likely be needed to assist with settling the estate.
Federal gift taxes apply when property (including, real estate, cash, or anything of financial value) is given from one person to another for anything less than full value.
This only applies to property that is given away during one’s life, so property inherited after the deceased’s death will not be subject to a federal gift tax.
If the deceased gave away property while on their deathbed or shortly before death, however, that property may be subject to gift taxes.
Important
There is a lifetime gift tax exemption of $12.06 million (for a single person) and $24.12 million (for married couples).
This means the deceased can give away a total value of property up to $12.06 million or $24.12 million in their lifetime.
Gift taxes are complicated and subject to multiple rules (such as an annual exclusion amount) so it may be wise to consult with a CPA if gift taxes will apply to the estate.
It may be simpler to settle the estate without the need to hire a CPA.
Review the other questions in this section to see if any other situations might require the assistance of a CPA.
The estate is more likely to need the assistance of a CPA.
Estate, inheritance, and gift taxes are affected by both state laws and federal laws.
Federal estate taxes apply to estates with a value of $12.06 million or more (for a single person) or estates with a value of $24.12 million (for married couples).
IRS rules and regulations specify which types of assets and debts are included in the calculation of an estate’s value.
If the deceased’s estate qualifies for federal estate taxes, a CPA will likely be needed to assist with settling the estate.
Federal gift taxes apply when property (including, real estate, cash, or anything of financial value) is given from one person to another for anything less than full value.
This only applies to property that is given away during one’s life, so property inherited after the deceased’s death will not be subject to a federal gift tax.
If the deceased gave away property while on their deathbed or shortly before death, however, that property may be subject to gift taxes.
Important
There is a lifetime gift tax exemption of $12.06 million (for a single person) and $24.12 million (for married couples).
This means the deceased can give away a total value of property up to $12.06 million or $24.12 million in their lifetime.
Gift taxes are complicated and subject to multiple rules (such as an annual exclusion amount) so it may be wise to consult with a CPA if gift taxes will apply to the estate.
It may be simpler to settle the estate without the need to hire a CPA.
Review the other questions in this section to see if any other situations might require the assistance of a CPA.
Will the inherited assets affect the heirs' financial status?
The heirs who will be affected should speak with a CPA.
An inheritance may cause an heir to move into a more expensive tax bracket or they may be faced with inheritance taxes.
Of course, the effect the inheritance will have depend on the value of the asset or assets inherited, coupled with the individual’s current financial situation.
If the deceased left behind IRAs or employer-sponsored retirement plans (e.g. 401k), the person who inherits the account might have to pay taxes on any money they withdraw from the account.
If faced with these types of accounts, it is wise to speak with a CPA to ensure funds are withdrawn in the most beneficial way (that doesn’t result in an excessive tax bill).
Earnings on inherited assets are also taxable.
For instance, if Jane Doe inherits a rental property when her father dies, Jane will have to pay taxes on the income from the rental property.
This could potentially push Jane into a higher income tax bracket, resulting in her paying more in taxes.
Either way, if any heirs are concerned that their inheritance could affect their financial status or taxes, they should contact a CPA for assistance.
It may be simpler to settle the estate without the need to hire a CPA.
Review the other questions in this section to see if any other situations might require the assistance of a CPA.
The heirs who will be affected should speak with a CPA.
An inheritance may cause an heir to move into a more expensive tax bracket or they may be faced with inheritance taxes.
Of course, the effect the inheritance will have depend on the value of the asset or assets inherited, coupled with the individual’s current financial situation.
If the deceased left behind IRAs or employer-sponsored retirement plans (e.g. 401k), the person who inherits the account might have to pay taxes on any money they withdraw from the account.
If faced with these types of accounts, it is wise to speak with a CPA to ensure funds are withdrawn in the most beneficial way (that doesn’t result in an excessive tax bill).
Earnings on inherited assets are also taxable.
For instance, if Jane Doe inherits a rental property when her father dies, Jane will have to pay taxes on the income from the rental property.
This could potentially push Jane into a higher income tax bracket, resulting in her paying more in taxes.
Either way, if any heirs are concerned that their inheritance could affect their financial status or taxes, they should contact a CPA for assistance.
It may be simpler to settle the estate without the need to hire a CPA.
Review the other questions in this section to see if any other situations might require the assistance of a CPA.
Was the deceased up-to-date with their tax filings?
It may be simpler to settle the estate without the need to hire a CPA.
Review the other questions in this section to see if any other situations might require the assistance of a CPA.
Taxes will need to be filed for the years before the deceased died if they were not current on their taxes.
For example, if Jane Doe passed in 2020, but had not filed taxes since 2017, the executor of Jane’s estate will need to file Jane’s taxes for 2018-2020.
This situation will likely require the assistance of an accountant.
Important
Any taxes owed by the deceased are now owed by the deceased’s estate.
Taxes owed by an estate must be paid before any heirs and beneficiaries can receive assets from the estate.
Contact an accountant to determine how much the deceased owed on their taxes, especially if the estate will be responsible for back-taxes and penalties.
Back-taxes are taxes from previous years that are partially or fully unpaid.
The IRS and state governments assess penalties on back-taxes in their own way.
It may be simpler to settle the estate without the need to hire a CPA.
Review the other questions in this section to see if any other situations might require the assistance of a CPA.
Taxes will need to be filed for the years before the deceased died if they were not current on their taxes.
For example, if Jane Doe passed in 2020, but had not filed taxes since 2017, the executor of Jane’s estate will need to file Jane’s taxes for 2018-2020.
This situation will likely require the assistance of an accountant.
Important
Any taxes owed by the deceased are now owed by the deceased’s estate.
Taxes owed by an estate must be paid before any heirs and beneficiaries can receive assets from the estate.
Contact an accountant to determine how much the deceased owed on their taxes, especially if the estate will be responsible for back-taxes and penalties.
Back-taxes are taxes from previous years that are partially or fully unpaid.
The IRS and state governments assess penalties on back-taxes in their own way.
Did the deceased file taxes for the year before they died?
It may be simpler to settle the estate without the need to hire a CPA because the estate should not owe back-taxes or penalties.
Review the other questions in this section to see if any other situations might require the assistance of a CPA.
Taxes will need to be filed for the year preceding death as well as the year the deceased died.
For example, if Jane Doe died in 2021, but did not file taxes for 2020, the executor of Jane’s Estate will need to file Jane’s tax returns for 2021 and 2020.
Jane could owe back-taxes (the unpaid amount) and penalties that are assessed on unpaid tax balances.
This type of situation may require the assistance of an accountant.
It may be simpler to settle the estate without the need to hire a CPA because the estate should not owe back-taxes or penalties.
Review the other questions in this section to see if any other situations might require the assistance of a CPA.
Taxes will need to be filed for the year preceding death as well as the year the deceased died.
For example, if Jane Doe died in 2021, but did not file taxes for 2020, the executor of Jane’s Estate will need to file Jane’s tax returns for 2021 and 2020.
Jane could owe back-taxes (the unpaid amount) and penalties that are assessed on unpaid tax balances.
This type of situation may require the assistance of an accountant.
Providers to Contact
Certified Public Accounts Near You
An accountant is a professional who specializes in financial record keeping. They can help you open an estate bank account, keep track of finances, and ensure that all financial paperwork is in order. They can also assist with tax filings.
