How to avoid taxes on executor fees. It's important to note that executor fees are considered taxable income. However, if the executor is also a beneficiary of the estate, they might choose to waive their right to receive executor fees in order to avoid paying taxes on them.
Trusts and estates are generally not treated as a “trade or business” and nonprofessional trustees are serving in a capacity that does not qualify as a “trade or business” activity for that individual. Therefore, we generally do not issue 1099s for executor or trustee fees.
Inheritance checks are generally not reported to the IRS unless they involve cash or cash equivalents exceeding $10,000. Banks and financial institutions are required to report such transactions using Form 8300. Most inheritances are paid by regular check, wire transfer, or other means that don't qualify for reporting.
If you incurred expenses managing the estate, you can deduct those on the estate's tax return. These might include costs like attorney or accountant fees or the cost to use a service. The estate can also deduct any executor fees it paid you for the services you provided as personal representative of the estate.
If you are in the trade or business of being an executor, report fees received from the estate as self-employment income on Schedule C, Profit or Loss From Business, of your Form 1040.
An estate's executor or administrator, also know as a personal representative (“PR”), is personally liable for paying the decedent's remaining tax bills, be they income taxes, gift taxes or estate taxes. See 31 U.S.C. §3713(b) and IRS Manual 5.17.
If you received a gift or inheritance, do not include it in your income. However, if the gift or inheritance later produces income, you will need to pay tax on that income. Example: You inherit and deposit cash that earns interest income. Include only the interest earned in your gross income, not the inherited cash.
Deposit the money into a safe account
Your first action to take when receiving a lump sum is to deposit the money into an FDIC-insured bank account. This will allow for safekeeping while you consider how to make the best use of your inheritance.
Bottom Line. California doesn't enforce a gift tax, but you may owe a federal one. However, you can give up to $19,000 in cash or property during the 2025 tax year and up to $18,000 in the 2024 tax year without triggering a gift tax return.
(These are sometimes called “fiduciary returns.”) Additionally, an executor may need to coordinate with a trustee to file federal and state income tax returns for a trust. Some estates may also require local tax returns. An executor may also need to file a state inheritance tax return if the state imposes such a tax.
The simple answer is that, either through specific will provisions or applicable state law, an executor is usually entitled to receive compensation. The amount varies depending on the situation, but the executor is always paid out of the probate estate.
From the personal representative or trustee's perspective
A nonprofessional personal representative or Trustee (such as one serving in a family or friend setting) will simply include the fees in the Trustee's gross income on Line 21 of Form 1040 as other income, and such fees are not subject to self employment tax.
Lawyers can charge a wide range of fees, but it's pretty common for the cost to be anywhere between $100 - $500.
After someone dies, their estate (money, possessions and property) is left to an executor named in their will. The executor is legally responsible for taking care of their estate, which will likely include paying any taxes that are owed, including Capital Gains Tax.
Section 6324(a)(1) establishes a federal tax lien upon the property included in the gross estate of a decedent for 10 years after the decedent's date of death. The gross estate includes probate and non-probate property.
A financial advisor can help you put an estate plan together to protect your assets for your family. The best place to deposit the large cash inheritance is in a federally insured bank or credit union account. Putting the inheritance in a savings account is a good option for the short term.
Most financial institutions allow you to designate at least one beneficiary on deposit accounts, like savings accounts, checking accounts, and CDs. You can also designate a beneficiary, or multiple, on investment accounts, like IRAs.
Financial institutions are required to report cash deposits of more than $10,000 in compliance with the Federal Bank Secrecy Act. These reporting standards are intended to alert the government to potential crime and fraud, including money laundering and other illegal activity.
Many people worry about the estate tax affecting the inheritance they pass along to their children, but it's not a reality most people will face. In 2025, the first $13,990,000 of an estate is exempt from federal estate taxes, up from $13,610,000 in 2024. Estate taxes are based on the size of the estate.
Do you need to declare inheritance money? No. Any tax due will normally be taken out of the deceased's estate, and the executor will usually take care of it. This means you won't need to declare inheritance money to HMRC – an inheritance isn't classed as income, and therefore isn't taxable.
Therefore, inheritances do not impact eligibility, and no reporting requirements exist for inheritances or assets received. Before assuming an inheritance will forfeit your benefits, check which program you receive—SSI or SSDI.
Spending all the estate assets can also lead to fines and repercussions for the estate if there is not enough money left to pay for important expenses like estate taxes and creditor debts. Fortunately, the law provides potential recourse for beneficiaries who have experienced theft at the hands of an estate executor.
Real Estate and Business Taxes
Similarly, an executor is responsible for paying all business taxes if the estate contains a business. Most importantly, this will include quarterly payroll taxes.