Accounts with beneficiaries that earn interest income or dividend income will continue to earn such income after the death of the account owner. While in the interim, this fact causes confusion for most common executors because it brings up a couple of questions. The questions include the following:

1. Who receives the income paid to the decedent?

2. Who is responsible for reporting the income for tax purposes?

Handling Accounts with Beneficiaries

As mentioned in the article Track the Estate Income, accounts with beneficiaries are not part of the estate. Those accounts become the property of the beneficiaries at the date of death. So, the income earned after death, from those accounts, belong to the beneficiaries. As a result, the beneficiaries are responsible for reporting the income on their tax returns.

Since accounts with beneficiaries are property of the beneficiary, the executor doesn’t have to wait until approved by the probate court to deal with these accounts. The executor can mitigate the confusion by performing the following tasks immediately after the filing of paperwork with the probate court:

• Call the financial institutions that hold the accounts to inform them of the death. The executor will probably need to send each institution a copy of the death certificate to confirm the death.

• Contact the beneficiaries to let them know that they can claim their portion of the assets in each account. The executor will need to give them a copy of an account statement and a copy of the death certificate. The beneficiaries will likely have to send some form of identification as well. This will effectively settle each account after each beneficiary has claimed their portion of the assets.

Conclusion

Once the financial institutions are notified of the death, they will assign the income to the beneficiaries. Hopefully, the financial institutions will send the 1099’s  to the right people with the correct amounts for tax reporting purposes.

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