Basis of Accounting

• If the decedent used the cash method, only items received before death are included on the final return. The return should also include items constructively received before death. The accrual method of accounting is based on the concept that income is reported as it is earned, whether or not it is actually or constructively received. If the decedent used the accrual method, only items normally accrued before death are included on the final return.
  
  

Summary of Estate Taxation

• A decedent's estate is a separate legal entity for purposes of taxation, and tax returns are prepared for the estate until it is fully distributed. An estate figures its income tax similarly to an individual, and is entitled to many of the same credits and deductions.
  
  

Income Distribution to Beneficiaries

• Before filing the estate's return, the fiduciary must compute the accounting income of the estate to determine the amount, if any, of income that is required to be distributed to beneficiaries. The estate will not pay taxes on these distributions. Rather, any distributions to beneficiaries are taxed on the beneficiary's personal tax return.
  
  

Personal Representative

• The personal representative administers the estate; this is generally the executor named in the decedent's will or trust, or a court-appointed administrator. The personal representative collects the decedent's assets, pays any creditors, distributes assets to heirs and beneficiaries and ensures the estate's compliance with tax regulations.