Income in respect of a decedent, also known as IRD, represents money or assets that may be owed to the decedent that have not been received or collected before their death. IRD is estate income that is also considered taxable income, but is treated differently than income received from a job or other sources.
Who Receives Income in Respect of a Decedent?
Income in respect of a decedent, or IRD, is income payable to the decedent’s estate, trust, or beneficiary. When someone dies, their estate receives income or assets that they would have received if they had still been alive. This includes wages, bonuses, dividends, profits, and interest on investments. In the case of a trust, the beneficiaries are typically the recipients of the income.
How Is Income in Respect of a Decedent Taxed?
Income in respect of a decedent is treated differently than income received from wages or other sources. IRD is taxed as if the decedent had received the income during their lifetime. As such, it’s subject to the same income tax rates as if the decedent had earned it. Depending on the size of the income, additional taxes like estate taxes may also be applicable.
Examples of Income in Respect of a Decedent
Income in respect of a decedent can come from a variety of sources. Common examples include estate distributions, defaulted student loans, rental income, annuities, pension payments, social security benefits, and stock dividends. The key factor is that the asset or income was due to the decedent before they passed away.
Final Thoughts
Income in respect of a decedent, or IRD, is a common fixture of estate planning. If you’re a beneficiary of a trust or the executor of an estate, make sure to stay abreast of all applicable taxes to avoid any surprise tax bills. While IRD is a taxable asset, it’s always best to plan ahead to maximize your return and protect your estate.