Most people facing this question are already deep in the work of settling an estate. They may be an adult child named executor, a surviving spouse sorting through statements, or a successor trustee who just learned that the trust may have to file its own return. Other relatives may be asking when they will receive their shares. The tax side can feel like one more unfamiliar job on top of the rest. This page explains what that work involves, when a CPA tends to be involved, and how to check that a CPA holds a California license.
What an Estate CPA Does — and When You Need One
Estate settlement tax work begins after a death and covers the returns that the person's death sets in motion. Estate planning is different. It happens during a person's lifetime, when the person creates or changes a will or a trust, and this page does not cover it.
IRS Publication 559, Survivors, Executors, and Administrators describes the filings the person in charge may face. Up to three returns can arise:
- The decedent's final Form 1040, which covers income earned up to and including the date of death.
- The estate's Form 1041, the U.S. Income Tax Return for Estates and Trusts, which covers income received after the death.
- Form 706, the federal estate tax return, which applies to estates above the amount that federal law allows a person to leave before estate tax is owed.
IRS Publication 559 also explains how much a person can leave at death before any tax is owed. A tax professional can say whether a particular estate reaches that amount. The decedent's final California income tax return and any California fiduciary return go to the Franchise Tax Board.
A CPA also works on basis. Basis is the starting value used to measure gain when property is sold. Under 26 U.S.C. § 1014(a), the basis of inherited property is generally its fair market value on the date of death. The statute lists exceptions, including an election to use a later valuation date. This rule is often called a "stepped-up basis." It affects how much gain an heir reports if they later sell the property.
CPAs are not the only professionals who do this work. Enrolled agents and tax attorneys also handle estate tax matters.
Do You Need a CPA to Settle an Estate in California?
The duty that matters is filing the returns, and IRS Publication 559 places it on the personal representative. That is the IRS's term for the person in charge of a decedent's property. According to the publication, the personal representative must file the final income tax return for the year of death and any earlier returns that were not filed.
California law does not reserve all return preparation for CPAs. Business and Professions Code section 5051 treats preparing or signing tax returns for clients as "public accountancy" only when a CPA or public accountant does it. A person who prepares returns without using either designation is not practicing public accountancy.
How much help a family uses usually depends on what the estate holds. Consider a hypothetical estate made up of a checking account and household belongings collected by affidavit. Its tax work may involve little more than a final individual return. The work grows heavier when the estate includes a business, rental property, large investment accounts, property in more than one state, or enough value that Form 706 has to be filed. Where property sits in another state, that state's law applies to it.
The CPA and the probate attorney have different roles. The attorney handles court filings and the executor's legal authority. The CPA handles the returns and the basis calculations. On a California estate settlement timeline, the two jobs often run side by side.
How to Verify a CPA's License in California
The California Board of Accountancy (CBA), part of the Department of Consumer Affairs, issues the permits that Business and Professions Code section 5050 requires. Under that section, no one may practice public accountancy in California without a valid board permit or a practice privilege. The section lists limited exceptions.
The California Board of Accountancy License Lookup page explains what a California-licensed CPA is. It describes an individual who has met the state's education, examination and experience requirements and has been issued a license by the CBA. The page also explains that some out-of-state CPAs may practice in California under a practice privilege. It notes that a search showing no results for an out-of-state CPA does not mean the person lacks authority to practice here.
The CBA's How to Select a CPA page suggests several checks:
- Confirm that the license status is clear and that the expiration date has not passed.
- Search the CBA's Public Enforcement Documents for any action taken against the licensee.
The same page explains what license status means. A licensee who completes the required continuing education may renew as "active." A licensee who does not complete it should renew as "inactive" and may not practice public accounting.
Professional associations, such as the California Society of CPAs, publish directories of their members. The CBA cautions that a directory listing does not ensure a practitioner is well qualified or licensed. Its page advises checking the license status in any case.
What to Ask a California Estate CPA Before You Hire
A first conversation with a CPA usually goes more smoothly when the executor or trustee arrives with a few questions written down. The questions below are ones a family member might raise, depending on what the estate holds.
Fiduciary returns. How often does the CPA prepare Form 1041 and the matching California fiduciary return? If the estate may be large enough, has the CPA prepared Form 706? IRS Publication 559 notes that the personal representative chooses the estate's accounting period when filing the first Form 1041. The first tax year can be any period that ends on the last day of a month and does not exceed 12 months. That choice is worth discussing early.
Deductions. IRS Publication 559 explains that administration expenses can be deducted on Form 706 or on Form 1041, but not on both. A family might ask how the CPA decides between them.
The house. Is the CPA familiar with California's parent-child reassessment exclusion? Who will coordinate with the probate attorney and with the county assessor's office?
Deadlines. When is each return due, and who will track the dates?
Scope. The CBA's How to Select a CPA page recommends a written engagement letter before any work begins. According to the page, the letter should describe the work, say who will perform it and whether any of it is outsourced, confirm how personal information is kept secure, and state the cost.
The California Franchise Tax Board and IRS: What the Estate Files
Two agencies receive an estate's returns. The IRS receives the federal returns, and the California Franchise Tax Board receives the state income and fiduciary returns.
On the federal side, IRS Publication 559 describes an estate as a taxable entity separate from the decedent. The estate comes into being at the death and lasts until its assets are finally distributed to the heirs and beneficiaries. The decedent's final Form 1040 reports income earned up to and including the date of death. The estate's Form 1041 reports income received after the death, which can include interest, dividends, rents, and gain from selling property.
IRS Publication 559 adds two points that matter for an inherited house:
- When the personal representative sells a decedent's home in order to realize its value, the home is treated as a capital asset held for investment. This is true even though it was the decedent's residence.
- Gain or loss on the sale of an inherited capital asset is treated as long term, no matter how long it was held.
Form 1041's title covers trusts as well as estates. Whether a living trust files its own return after the grantor's death depends on the trust's terms and income. A CPA, an enrolled agent or a tax attorney reviews that question. If the estate includes a house, an executor may also want to understand executor responsibilities for real estate.
Property tax is a separate matter handled by the county assessor. Under Rev. & Tax. Code section 63.2, a transfer between parents and children on or after February 16, 2021, may be excluded from reassessment if a claim is filed with the assessor. The same applies to a transfer from grandparents to grandchildren when the grandchild's parents who are the grandparents' children have died. The conditions include these:
- The home was the transferor's principal residence and becomes the transferee's principal residence within one year.
- The transferee files for the homeowners' or disabled veterans' exemption within a year.
There is also a value limit tied to the home's prior taxable value.
The claim is due within three years after the transfer, before the property is transferred to a third party, or before an eligible transferee stops living in the home, whichever comes first. A claim also counts as timely if it is filed within six months after a notice of supplemental or escape assessment is mailed. If the property has not passed to a third party, a later claim may still be considered, but the exclusion then applies only from the lien date of the year the claim is filed. The county assessor's office reviews these claims.
Using This Directory to Find a California Estate Tax Professional
Silver Lining Estate is a California website of educational estate-settlement and inheritance resources. It names no CPA and no firm. The public sources for checking a licensed California CPA are the California Board of Accountancy's license lookup and its guidance on selecting a CPA. Professional groups such as the California Society of CPAs publish their own member directories.
Tax help is one part of a larger set of roles. The California estate professionals directory describes the others, and the guide on who settles an estate explains which person signs the returns. For the full order of tasks, see how to settle an estate.
Disputes among heirs and suspected misconduct by a trustee are a different subject. An attorney who litigates trust and probate cases handles them.
