In Georgia, the probate process is essential in settling a deceased person's affairs. This includes addressing their outstanding debts and taxes. At Peach State Wills & Trusts, we understand that navigating through probate can be challenging, especially during loss. In this blog post, we'll explain how debts and taxes are managed during probate in Georgia, ensuring that you, as a potential client, clearly understand the process.

Understanding Probate and Debts

When someone passes away, their estate is responsible for settling any outstanding debts. In Georgia, the probate process facilitates this. The executor or administrator, after appointment by the probate court, identifies all creditors and ensures valid debts are paid from the estate's assets. It's important to understand that specific assets may be exempt from being used to pay off these debts.

Georgia law stipulates a specific order in which debts must be paid. Typically, expenses related to estate administration, funeral costs, and taxes take precedence. This prioritization is crucial to ensure the estate is settled correctly and complies with state laws.

Dealing with Taxes During Probate

Dealing with taxes during probate is essential to settling an estate in Georgia. The executor or administrator of the estate is responsible for handling these tax matters. Here's a detailed look at the key aspects:

1. Final Income Tax Returns for the Deceased: The executor or administrator must file the final income tax returns for the deceased individual. This includes reporting all income earned by the decedent up until the date of death. These returns are due by the regular tax filing deadline in the year following the individual's death.

2. Federal Estate Taxes: While Georgia does not have a state estate tax, estates may be subject to federal taxes. For persons dying in 2023, the federal estate and gift tax exemption is 12.92 million dollars.  The exemption for 2024 was recently announced as 13.61 million dollars. This threshold is adjusted periodically for inflation, and, if Congress does not act before hand, the exemption will cut in half starting in 2026. The executor should determine if the estate's value exceeds this threshold. If so, they must file a federal estate tax return (Form 706) and pay any owed taxes from the estate's funds. If the decedent has a taxable estate, it would certainly be wise for the executor or administrator to work with a good CPA or tax advisor for help with this item.

3. State and Federal Income Taxes for the Estate: The estate might generate income during the probate process  through interest, dividends, or property rentals, for example. If the estate earns income, the executor must file income tax returns for the estate. Federal taxes are done using Form 1041, U.S. Income Tax Return for Estates and Trusts. Georgia has a similar requirement for state income taxes on estate income.

4. Paying Taxes Owed by the Deceased: The estate must pay any outstanding taxes owed by the deceased at the time of death, including back taxes or taxes due for the final year. The executor should ensure these liabilities are settled to avoid penalties.

5. Estate Administration Expenses and Deductions: Certain expenses incurred during the administration of the estate, including taxes, can be deducted from the estate's gross income. These deductions can reduce the estate's tax liability.

6. Distribution of Assets and Tax Implications for Beneficiaries: Beneficiaries might owe taxes on certain types of distributions. For example, retirement accounts like IRAs may have tax implications for beneficiaries. However, bequests and inheritances generally are not considered taxable income for beneficiaries.

7. Getting Professional Help: Given the complexity of tax laws and the potential for significant financial consequences, executors should seek professional advice. A tax professional or attorney specializing in estate planning and probate can provide crucial guidance on filing the necessary tax returns and dealing with other tax-related issues during probate.

Contact Us at Peach State Wills & Trusts

Probate can be complex, especially when dealing with debts and taxes. At Peach State Wills & Trusts, we're here to make this journey smoother for you. Understanding each step of probate in Georgia is critical to ensuring that your loved one's estate is managed correctly and following the law.

Planning can significantly ease the probate process. Contact Peach State Wills & Trusts at 678-344-5342 or online to learn how to plan for probate in Georgia. If you have any questions about estate planning in Georgia, you can download our free guide here, no strings attached.