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Estate Tax Preparation Explained: What Executors and Families Should Know Before Filing

  • August 10, 2026

Serving as the executor of an estate can feel overwhelming, especially when tax documents, property values, financial accounts, and filing deadlines are added to an already emotional situation. Executors are responsible for gathering information, protecting estate assets, paying valid obligations, and helping ensure required tax returns are filed correctly.

Estate tax preparation becomes much more manageable when families understand what may need to be filed and begin organizing records early. At Bluegrass Accounting & Tax Solutions, we help executors and families throughout Eastern Kentucky navigate the financial and tax responsibilities involved in settling an estate.

Estate Tax Is Only One Part of the Filing Process

The phrase “estate tax return” is often used to describe several different filings. In reality, an executor may need to address more than one type of return.

The Decedent’s Final Individual Income Tax Return

The deceased person may need a final federal and state individual income tax return. This return generally reports income received from January 1 through the date of death, along with eligible deductions and credits. Prior year returns may also need attention if the deceased person had unfiled tax obligations.

The Estate’s Fiduciary Income Tax Return

After a person dies, the estate becomes a separate taxable entity. Income received after the date of death, including interest, dividends, rent, or gains from asset sales, may belong to the estate rather than the deceased person.

A federal Form 1041 is generally required when an estate generates more than $600 in annual gross income. The return reports the estate’s income, deductions, gains, losses, distributions, and potential income tax liability.

The Federal Estate Tax Return

Federal Form 706 calculates estate tax and may also be used to make certain elections. For someone who dies in 2026, the federal filing threshold is $15 million, although lifetime taxable gifts can affect whether a return is required. An estate below the threshold may still choose to file Form 706 to transfer a deceased spouse’s unused exclusion to a surviving spouse through a portability election.

Most families will not owe federal estate tax, but that does not mean there are no tax filings to complete.

Kentucky Inheritance Tax May Also Apply

Kentucky inheritance tax is based partly on the beneficiary’s relationship to the deceased person. Certain close family members are treated differently from more distant relatives and unrelated beneficiaries.

Because the beneficiaries and assets involved can affect the filing requirements, executors should not assume that no Kentucky return is needed simply because the estate does not owe federal estate tax. Kentucky also imposes fiduciary income tax on certain income retained by an estate or trust rather than distributed to beneficiaries.

Documents Executors Should Gather

Organized records are essential to accurate estate tax preparation. Executors should begin collecting information as soon as they have the legal authority to act for the estate.

Important records may include:

  1. The death certificate, will, trust documents, and court appointment records
  2. Prior federal and Kentucky income tax returns
  3. Bank, investment, retirement, and insurance statements
  4. Real estate deeds, property tax records, and appraisals
  5. Business ownership and valuation documents
  6. Records of debts, funeral costs, and administrative expenses
  7. Legal, accounting, and appraisal invoices
  8. Documentation of income received after death
  9. Records of asset sales and beneficiary distributions
  10. Information about significant lifetime gifts

Complete records allow the tax professional to separate the deceased person’s income from the estate’s income and determine which expenses may receive tax treatment.

Why Date of Death Values Matter

Many estate assets must be valued as of the date of death. These values may affect estate tax reporting and establish the beneficiary’s tax basis in inherited property.

Accurate valuations are particularly important for real estate, investments, farms, closely held businesses, collectibles, and other property whose value is not immediately clear. Executors should retain appraisals, account statements, and supporting documentation even when no federal estate tax return is required.

These records may become important later if a beneficiary sells an inherited asset and needs to calculate a gain or loss.

Pay Attention to Filing Deadlines

The executor is responsible for making sure applicable returns are filed on time. A required federal estate tax return is generally due nine months after the date of death. A six month filing extension may be requested, but an extension to file does not automatically extend the deadline for paying tax.

The final individual income tax return generally follows the normal individual filing schedule. The due date for a fiduciary income tax return depends on the tax year selected for the estate.

Because different returns may follow different timelines, creating a filing calendar early can help prevent missed deadlines.

Avoid Distributing Every Asset Too Soon

Executors may feel pressure to distribute money and property quickly, but final distributions should not be made until taxes, professional fees, debts, and administrative expenses have been evaluated.

Distributing too much too soon can leave the estate without enough cash to pay its obligations. The executor may then face difficult conversations with beneficiaries or potential personal responsibility for unpaid amounts.

Before making a final distribution, confirm that required returns have been prepared, expected taxes have been calculated, and an appropriate reserve has been retained.

Work With a CPA Before Filing

Estate tax preparation is not simply a matter of entering numbers on a form. It requires determining which taxpayer received the income, establishing asset values, reviewing expenses, identifying filing requirements, and coordinating distributions.

At Bluegrass Accounting & Tax Solutions, we provide the professional resources of a full service firm while giving every executor and family the individual attention they deserve. We proudly serve Fayette, Rowan, Carter, Bath, Morgan, Montgomery, Elliott, Lewis, and Boyd Counties from our Morehead office.

For help preparing estate and fiduciary tax returns, call 606 784 1622 or email aimee@bluegrasstax.com.

Frequently Asked Questions

No. A federal estate tax return is generally required only when the estate and adjusted taxable gifts exceed the filing threshold for the year of death. A return may still be filed for other reasons, including a portability election for a surviving spouse.

Estate tax applies to the transfer of wealth at death and is reported on Form 706 when required. Estate income tax applies to income the estate earns during administration and is generally reported on Form 1041.

The executor may need to locate records and file any missing returns before the estate can be fully resolved. A CPA can review available tax transcripts and financial documents to determine which filings remain outstanding.

Partial distributions may sometimes be appropriate, but sufficient funds should remain in the estate for taxes, debts, and administrative expenses. Executors should review planned distributions with their attorney and CPA before transferring substantial amounts.

We help executors identify required tax filings, organize financial information, prepare final individual and fiduciary returns, and evaluate estate tax obligations. Our goal is to make the process clearer while helping the estate remain compliant and move toward completion.