Post-mortem planning - to reduce the overall tax liability for the estate and its beneficiaries

Depending on the circumstances, an executor may be entitled to file certain elective tax returns. For instance, if the deceased had earned income from what are known as “rights or things,” the executor can choose to report this income on separate returns. Rights or things include items such as:

  • payments for work in progress by professionals;
  • dividends declared, but not paid, before the taxpayer’s death; and
  • unpaid salary for a pay period completed prior to death.

Partnership stub returns (reporting income from a partnership), and trust stub returns (reporting trust income paid to a beneficiary) may also be available, depending on the deceased’s situation. By filing these additional returns, the deceased can access another set of credits (e.g., personal tax credit or age credit), and a second set of graduated tax rates. That reduces her overall tax liability. Other post-mortem planning techniques include: taking advantage of available exemptions (e.g., if the deceased owned more than one property at death, you would apply the principal residence exemption to the property with the greatest apital gain); and making appropriate elections (e.g., taking advantage of the preferred beneficiary, where applicable).

One of the most common and potentially valuable examples of post-mortem planning relates to the treatment of private company shares when the shareholder dies.

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