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Often when a person dies the surviving spouse or executor receives huge medical bills from the last illness or accident of the decedent. Hopefully most of such final medical expenses are covered by medical insurance but as anyone who has been tasked with dealing with the after death financial matters knows this is a long, complex and time consuming process.
Any medical expenses of the decedent not paid before death are by default liabilities of the decedent’s estate. If a federal estate tax return, form 706, is required those unpaid medical expenses are a liability of the estate.
However, the estate personal representative (PR) or surviving spouse if there is no PR may elect to treat such eligible medical expenses as paid by the decedent at the time the medical services were provided. Such medical expenses must be paid within the one year period beginning with the day after the date of death (DOD) to be eligible to deduct by itemizing.
Assuming such deduction provides an income tax benefit on the final 1040 of the decedent, regardless of their tax filing status (MFJ, single, etc.), then the personal representative or surviving spouse must attach a separate statement, in duplicate, to the decedent’s final form 1040 in addition to schedule A itemizing deductions and stating such medical expenses were paid post death in the one year following the DOD and have not been and will not be claimed on the decedent’s estate (form 706) tax return.
I will not go into the reporting needed on form 706 as it is infrequently filed because of the high exemption amount we each have that eliminates the requirement to file a 706 for most of us and because such reporting is beyond the scope of this article. Note, just because no 706 will be filed does not eliminate the need for the statement in the 1040 for post DOD medical expenses if itemizing.
In a nutshell this information is often most useful if the decedent has a surviving spouse, huge uninsured medical expenses paid after DOD, will itemize on the final 1040 and has a 1040 tax liability in the year of death without such itemized deductions. This action will be a lot of work and the PR and/or spouse will need to decide if the time and dollar cost is worth any expected tax benefit before doing the work.
If the decedent’s 1040 return has been filed and such post death medical expenses were not included on the original 1040 then an amended 1040X may be filed within the normal time period for filing amended returns to claim such medical expenses as a itemized deduction.
IRS Pub 502 and Pub 559 have short commentaries on the procedures for post DOD medical expense deduction requirements for itemizing.
My hope is that these actions and decisions will never be an issue for you.
Best, Bill
Thanks for the info William.
Bill, thanks for the great information and excellent responses below. I’ve been involved in 5 estates, and prepared the final tax return in 4 of them. With good medical coverage, and some lucky timing, there were not significant medical expenses for 4 of the 5 final returns. Similar to your suggestion to Chris, we were able to use my mother-in-law’s dementia diagnosis and her $70,000 of memory care expenses to offset taxable events like IRA withdrawals and the sale of after-tax assets with significant gains prior to her death.
While helping others I expect you have also helped your own planning on what needs to be done in regards to your own future estate. In the past while working with the adult children beneficiary(s) / personal representative a common outcome when the work is done are changes in their own planning and actions because of the hands on knowledge gained by those who step up and help.
I’ve been through this, but insurance made the need for any consideration a moot point.
Good morning Dan,
Your point about having appropriate insurance making such tax hoop jumping a moot point is likely the best outcome for any surviving spouse or the personal representative of the decedent’s estate.
Great point.
Thank you for this, Bill it might be helpful to Spouse’s brother’s wife when she does taxes next year. Chris
Good morning Chris,
I would encourage your family member to start the process of gathering the information for the final joint return as soon as she is able to do so.
If the uninsured medical expenses are so massive that the projected taxable income on the final 2025 married filing jointly return is zero or less she could decide to take actions in 2025 to not waste such medical expense for tax purposes by taking actions to cause recognition of taxable income such as making taxable IRA distributions or Roth conversions if such accounts exist for the surviving spouse.
It is a difficult time after the death of a spouse and often an extended period of mourning will rightly take place before she even wants to think about taxes. Such tax work can reopen floodgates of sorrow for those closest to the decedent.
Besides medical expenses the death of a spouse will often cause a change in the tax basis, hopefully a step up in basis, for assets owned by the decedent or jointly. Immediately after is the best time to capture good information about the fair market value as of the date of death for houses and taxable investment accounts. Many brokerage house have procedures to help the surviving spouse have the basis change as of DOD recorded before the assets are sold thus avoiding one tax headache.
If the decedent and spouse live in a community property state the step up rules for JWROS assets are diffferent in that such assets get a full 100% step up compared with the typical 50% step up for non community property states.
Thank you, Bill, that was so kind of you. C
I dealt with this issue for a family member who passed away a few years ago. I used a tax preparer/CPA to prepare the tax return for the surviving spouse in order to determine the best way to handle those expenses. The CPA did a great job compiling the return and maximizing the deductions available- beyond what I may have figured out. I didn’t choose DIY, but having done my own returns for years, a had a good idea what documentation the CPA would be looking for and was able to get him all info for the return in one meeting, which kept his fee down (under $500).
Sometimes the selective use of professionals is warranted, if not only to make the best use of one’s time.
A great point about organizing the expenses whether the choice is DIY or a professional preparer.