top of page
Search

Estate or Beneficiary: Who Picks Up The Tab?

  • Writer: The Liberty Team
    The Liberty Team
  • 2 minutes ago
  • 2 min read

Liberty Financial Solutions, LLC: We worry about the IRS so you don't have to...


Estate or Beneficiary: Who Picks Up The Tab?

International Taxation Experts
CPA Dallas-Fort Worth Metro Area

Estate or Beneficiary: Who Picks Up The Tab?


Riddle me this.


If the beneficiaries of an estate receive income directly from the payor (e.g., dividends from an investment or royalties from a property) rather than through the executor or estate, who is actually responsible for reporting and paying the income tax on that income?


Here's the deal: If a beneficiary receives income directly from the payor and not through the estate, then the beneficiary generally has the obligation to report and pay taxes on that income personally. In this case, that income is generally not includable in the estate’s income for income tax purposes (but rather is includable in the individual beneficiary's personal income tax return).


Here are some key points to consider:


Key Points:


  1. Estate Income vs. Beneficiary Income:


    • If income is paid to the estate and then distributed to beneficiaries, it is includable in the estate's gross income, and the estate may deduct the distribution (IRS Form 1041 and Schedule K-1).

    • If the income is paid directly to the beneficiaries (e.g., interest, dividends, annuities), and not under the control of the estate, then the estate generally does not include it in its income.


  2. Estate Tax vs. Income Tax:


    • This answer concerns income tax (IRS Form 1041 for estates).

    • For estate tax purposes (Form 706), the value of the asset that produces income may be includable in the gross estate for estate tax, even if the income goes directly to a beneficiary. This depends on ownership, control, and other factors at death.


      The basics of estate taxation
      Estate Taxation: What You Need to Know

      Example:


    • If the deceased owned a bond that pays interest after death directly to a beneficiary (per payable-on-death designation), that interest is taxed to the beneficiary, not the estate.

    • However, the value of the bond itself may be includable in the estate for estate tax purposes.


Summary:


If the income is received directly by beneficiaries and taxed to them, it is not includable in the estate’s income for income tax purposes. However, the underlying asset might still be includable in the gross estate for estate tax purposes.


Finally, if you find yourself dealing with estate tax issues, please reach out to us at Liberty Tax Defenders! Call us at 817-995-5008 or shoot us an email at:  info@libertytaxdefenders.com.


We're here to help!


Cheers!



©2025 Liberty Financial Solutions, LLC &  ©2025 Brad R. Horton.



P.S. Make sure you get your FREE copy of our SPECIAL REPORT: "The 8 Secrets The IRS Does NOT Want You To Know!" (simply click on the link in the previous sentence, scroll down to the second section of our home page, and download your copy today!)


Or, email us at:  info@libertytaxdefenders.com for your FREE copy.


Let us resolve your IRS problems for you!
IRS Audit Representation and CPA Near Me

bottom of page