A. Estate Income Tax Clearance Certificates.
For certain estates, California Revenue and Taxation Code Section 19513 prohibits the probate court from allowing the final account of the fiduciary unless the Franchise Tax Board certifies that all taxes have been paid or secured as required by law. The Estate Income Tax Clearance Certificate is only required if an estate meets BOTH of the following TWO requirements:
(1) Had assets with a fair market value exceeding $1,000,000 on the date of death, AND
(2) Is to distribute assets exceeding $250,000 to one or more nonresident beneficiaries.
In determining if the assets exceed $1,000,000, include the fair market value of all assets on date of death, wherever situated, for decedents who were California residents. Nonresident decedents should only include the value of those assets located in California.
In determining if assets exceeding $250,000 are distributable to nonresident beneficiaries, the residency of a trust which is a beneficiary of the decedent’s estate is determined by the residency of the trust’s fiduciaries and beneficiaries.
Before issuing the Estate Income Tax Clearance Certificate, the FTB requires payment of all accrued taxes of the decedent and the estate. The FTB may also require a deposit by check, or bond to secure the payment of any taxes which may later become payable.
The Estate Income Tax Clearance Certificate is valid only to the end of the current taxable year. The FTB will only issue a new Estate Income Tax Clearance Certificate extending the expiration date when a return is filed for each subsequent year and the tax for that year, if any, is paid.
The Estate Income Tax Clearance Certificate is issued to the fiduciary or representative designated on the application. THE ACTUAL FILING OF THE ESTATE INCOME TAX CLEARANCE CERTIFICATE WITH THE COURT IS THE RESPONSIBILITY OF THE FIDUCIARY OR REPRESENTATIVE.
B. Effect of the Estate Income Tax Clearance Certificate and Continuing Liability of the Fiduciary.
The Estate Income Tax Clearance Certificate issued under California Revenue and Taxation Code Section 19513 does not relieve the estate of liability for any taxes due or which may become due from the decedent or the estate. Neither does the certificate relieve the fiduciary of the personal liability for taxes and other expenses as imposed by California Revenue and Taxation Code Section 19516.
C. Other Information.
You do not need to submit a copy of the Final Account of the fiduciary unless the FTB requests it.
The FTB may require fiduciaries to withhold tax on California source income distributed to nonresident beneficiaries. Income from intangible personal property such as interest and dividend income or gain from the sale of stocks or bonds is generally not taxable to a nonresident beneficiary and therefore not subject to withholding. Failure to withhold when required may make the fiduciary personally liable for the amount due.
For information on determining requirements for withholding, telephone (888) 792‑4900 (toll free) or write to: Withholding Services and Compliance Section, Franchise Tax Board, PO Box 942867, Sacramento, CA 94267-0651.
Income earned by the estate in the final year in which its assets are distributed pursuant to a decree of final distribution is taxable to the beneficiaries. The estate must file a final return and properly report the income distribution. You should compute the return for the fractional part of the year prior to death on the basis of the method of accounting followed by the decedent. You can not include income and deductions for expenses, interest, taxes, and depletion accrued solely by reason of death in the return of a decedent for the period in which death occurred. Include those items in the return of the estate or beneficiary, as the case may be, upon receipt or payment.
D. Returns Required.
You must file a final fiduciary return (Form 541) for the year in which the estate closes if the filing requirements are met. You should also file a return to establish any excess deductions allowed to beneficiaries in the final year. The decedents final personal income tax return (Form 540, 540A, 540 2EZ, or Long or Short Form 540NR) must be marked “FINAL” at the top of the return in block letters. In addition, please furnish copies of any other returns filed for the decedent or the estate within the last 12 months. Write “COPY – DO NOT PROCESS” in bold letters on the face of each copy. If you submit original returns with this application, include an additional copy of each return with the words, “COPY – DO NOT PROCESS” in bold letters on the face of each copy. Mail the completed Estate Income Tax Request for Clearance Certificate and required returns to:
Estate Income Tax Clearance Unit, MS F150 Franchise Tax Board PO Box 1468 Sacramento CA 95812-1468
For more information about this and other California probate matters, contact Mitchell A. Port at 310.559.5259.