Navigating the Finances of a Deceased Loved One
When someone dies, they may still have income that was earned or accrued prior to their death. This income would be included on their final tax return and known as “income in respect of a decedent (IRD).” It includes wages, pensions, Social Security benefits, annuities, investments, and other forms of income. IRD must be reported on the deceased person’s final tax return unless it has already been included on previous returns. Life insurance can provide the needed funds to cover this final tax return.
What Is Income in Respect of a Decedent (IRD)?
IRD refers to income that a deceased taxpayer had a right to receive but had not yet received at the time of death. Common examples include:
- Wages or salary earned but not yet paid at the time of death
- Pension or retirement distributions that had begun but not been fully distributed
- Traditional IRA distributions that would have been taxable to the deceased
- Accrued interest or dividends not yet received
- Business income from a sole proprietorship
IRD Can Be Taxed Twice
How to Navigate the Financial Transition
Beyond IRD, there are many financial tasks that fall to surviving family members after a death. These include notifying Social Security, canceling or transferring accounts, filing the final tax return, distributing retirement accounts, and settling the estate through probate.
