Estate administration often becomes more challenging as the assets owned by an individual increase in value. Sizable estates that contain business assets, real estate and investment accounts can be particularly difficult for a personal representative to manage.
Not only do they need to secure and maintain a variety of high-value resources, but they also need to fulfill the financial responsibilities of the decedent and their estate. One of the obligations that can arise during estate administration is the need to pay certain taxes.
The personal representative of an estate in Washington may need to file an income tax return on behalf of the decedent. The estate itself might owe income taxes as well. Beyond that, there could be estate taxes due. What impacts can estate taxes potentially have on probate proceedings?
Taxes can diminish estate value
The larger an estate is, the greater the chances of estate taxes. Estates in Washington could be subject to both federal and Washington state estate taxes. The estate has to reach a certain minimum value for estate taxes to apply.
Washington’s limit is substantially lower than the federal threshold for taxes. Any estate probated in 2024 can avoid estate taxes if the total value of estate assets is less than $2,193,000. The potential tax rate in Washington ranges from 10% to 20% of non-exempt estate value, in addition to a flat amount paid before calculating that percentage.
When an estate is substantially larger than that, federal estate taxes could also be a concern. In 2024, estates worth $13.61 million or more could be subject to federal estate taxes. Federal estate taxes can significantly diminish the overall value of the estate. It is a progressive tax rate that increases with the size of the estate. The personal representative may need to set aside anywhere from 18 to 40% of the estate’s total value to fulfill federal estate tax obligations.
Taxes can lead to representative liability
Mistakes during the estate administration process can lead to liability for a personal representative. Their failure to reserve resources for taxes might put them at risk of a lawsuit. In cases where a personal representative improperly distributes resources without first fulfilling estate obligations, they may be at risk of liability.
Having support throughout probate proceedings can help personal representatives mitigate their risk. In most cases, the estate of the decedent can help cover the cost of legal representation during probate proceedings. Securing support can help protect a personal representative from lawsuits and financial liability.