Who typically pays taxes on the residual estate?

The residual estate is the part of an estate that remains after all debts, expenses, and specific bequests have been paid out to beneficiaries. The proper party responsible for paying taxes on the residual estate is the estate itself. This means that any income generated by the assets during the estate’s administration or taxes owed on the estate must be settled from its funds before any distributions are made to the heirs.

When an estate enters probate, it has distinct tax considerations, including federal and state estate taxes that must be calculated and paid from the estate's assets. The executor of the estate generally oversees this process, ensuring that all obligations are met and taxes are paid from the estate before any distribution occurs.

This understanding emphasizes the importance of clearly delineating who bears tax responsibilities within estate planning in order to avoid confusion or unforeseen liabilities for heirs, who typically do not pay taxes directly on the estate until they receive their share.