How should taxes be withheld when taking distributions from an estate?

UPDATED: Apr 11, 2012

Advertiser Disclosure

It’s all about you. We want to help you make the right legal decisions.

We strive to help you make confident insurance and legal decisions. Finding trusted and reliable insurance quotes and legal advice should be easy. This doesn’t influence our content. Our opinions are our own.

Get Legal Help Today

Compare Quotes From Top Companies and Save

secured lock Secured with SHA-256 Encryption

How should taxes be withheld when taking distributions from an estate?

Both of my in-laws passed away 2 years ago. My wife is the executrix for both wills. Each sibling received a one-time distribution from the estate, which still has money yet to be distributed, last year. At the recommendation of the accountant, 25% of the distribution was withheld by the estate, not the beneficiaries, for taxes. Now, each of the beneficiaries is being taxed on the distribution. Did we make a mistake? Should the withholding been made by each of the individual beneficiaries? Will the estate receive returns from the withholding?

Asked on April 11, 2012 under Estate Planning, New York


FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

Custom and practice with respect to trust and estate administration is to have the decedent's personal income taxes paid from the assets of the estate before distribution of assets to the beneficiaries. If there is a lag time regarding taxable years, for example the decedent died June 2010, but the estate was not ready for final distribution until March 2012, there will be a personal tax return for the decedent for 2010 tax year, and two estate tax returns for the estate for 2011 and 2012 (income and possibly estate tax).

Since there was no payment of taxes before the distribution, the beneficiaries are now being assessed the taxes of the estate and the decedent from what you have written. I recommend that you consult with a tax attorney to assist you and the beneficiaries in clearing up the tax issue where the assets should not have been distributed to the beneficiaries until the taxes were paid first and accepted as payment in full by the IRS and your state's franchise tax board.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

Get Legal Help Today

Find the right lawyer for your legal issue.

secured lock Secured with SHA-256 Encryption