WHAT TO DO WHEN TAXMAN KNOCKS AFTER DEATH

Benjamin Franklin once said that the only certainties in life are death and taxes.

This statement still holds true, especially when we consider that death does not eliminate one's tax responsibilities. In Uganda, as elsewhere, the death of a taxpayer does not extinguish their tax obligations.

My very good senior friend who I helped in handling his business and personal tax affairs was meticulous in his financial planning and ensured that all his assets were joint holdings.

He had also named nominees in all investments and even made a detailed Will. I was devastated when he died in 2021, but the steps he had taken during his lifetime ensured that his family inherited his assets without any hassles.

TAX RESPONSIBILITIES AFTER DEATH

Upon the death of a taxpayer, their estate - which includes property, money, businesses, and all other assets - becomes the responsibility of personal representatives. These representatives are tasked with managing and distributing the estate according to the deceased's Will or, in the absence of a Will, according to established laws of inheritance.

However, the process does not end with the distribution of assets. The tax liabilities of the deceased must be addressed, and this responsibility typically falls to the legal heirs. The first step is often filing a tax return on behalf of the deceased for the year in which they died.

WHY ADDRESS TAXES IN YOUR ESTATE PLAN?

Taxes might not be the first thing you think about when planning your estate, but addressing them can prevent significant issues for your loved ones.

By managing your tax responsibilities now, you can help ease the burden on your family during an emotionally challenging time. Additionally, it helps protect them from unexpected financial consequences that might arise if their tax obligations are left unresolved.

WHAT HAPPENS IF A DECEASED PERSON OWES TAXES?

If a deceased person has outstanding tax liabilities, the Uganda Revenue Authority (URA) can pursue the estate to recover the amounts owed.

The personal representatives, often the estate administrator, must report all income earned in the year prior to the deceased's death and file the necessary tax returns. They are responsible for gathering all relevant financial information and may need to request previous tax records from the URA.

WHO PAYS THE TAXES?

The responsibility for paying taxes on behalf of a deceased person usually falls on the individual named in the estate plan..

This person will manage the estate, settle outstanding taxes, and handle any refunds. Several roles may be involved:

Estate administrator: The person managing the estate's expenses, accounts and inheritance distribution. Appointed legal representative: This could be a lawyer or family attorney responsible for quickly addressing outstanding taxes.

Surviving spouse: If the deceased was married, the surviving spouse might handle the taxes, especially if filing jointly for the year of death.

Next of kin: In the absence of an estate plan, spouse, or legal representative, a loved one or next of kin may assume this responsibility, acting as a personal representative.

In Uganda, assets of the deceased are passed to beneficiaries at their market value as of the date of death. Taxes should be settled from the estate before any distribution to heirs.

The good news is that unrealized capital gains on assets not sold before death are not subject to immediate tax. However, if the asset is sold during probate and has appreciated in value, capital gains tax may apply, particularly on business assets.

ARE BENEFICIARIES LIABLE FOR DECEASED'S DEBTS?

Beneficiaries are generally not responsible for the deceased's debts. Creditors cannot legally demand that beneficiaries pay these debts from their inherited

assets.

Additionally, certain assets like retirement accounts, life insurance and trust funds may be protected from being used to settle the deceased's debts.

WHAT HAPPENS TO DEBTS AT DEATH?

Debts are not automatically forgiven after death; they must be paid from the estate.

If the estate lacks sufficient funds, some debts may go unpaid.

However, the estate remains responsible for settling any outstanding tax liabilities before distribution to beneficiaries.

CONSEQUENCES OF NOT FILING TAXES FOR A DECEASED PERSON

Failure to file taxes for a deceased person can result in legal action by the URA against the estate.

The personal representatives are liable for ensuring that all tax obligations are fulfilled, 記 and any oversight can not lead to complications in the administration of the estate.

TAX IMPLICATIONS FOR ESTATES IN UGANDA

Under Ugandan tax law, the estate is treated as a trust for tax purposes. The personal representatives, whether they are executors or administrators, hold the legal title to the deceased's property and must manage it according to the law, including paying any outstanding taxes.

The income derived by the estate, even before the administration is complete, is taxable. The tax treatment depends on the residence of the beneficiary and the nature of the income.

Trustees are liable for taxes on the estate's income, and the chargeable income includes worldwide income if the trustee is considered a resident taxpayer.

VAT CONSIDERATIONS

For Value Added Tax (VAT) purposes, a trust, including a deceased's estate, may qualify as a taxable person if it engages in a taxable activity. The estate is treated as a separate entity for VAT purposes, and the trustee is responsible for any VAT obligations arising from the estate's activities.

In conclusion, understanding the tax implications of death is crucial for creating a comprehensive estate plan.

Addressing these issues now can save your loved ones from the burden of navigating complex tax responsibilities during an already difficult time. In Uganda, as elsewhere, the deceased's tax obligations must be met, ensuring that "what belongs to Caesar" is rightfully given, even in death. Taking proactive steps today can prevent future complications and provide peace of mind for you and your family.

The writer is a Chartered Accountant and tax adviser.

New Vision