DEFINITION of 'Terminal Year'
The year in which an individual dies, in the context of estate planning and taxation. Terminal year is used in estate planning and taxation because special tax rules and handling of income and assets may apply during the taxpayer's final year. In Canada, the terminal year refers to the portion of the calendar year during which the individual was living, from the first of the calendar year (January 1) up to the person's date of death.
BREAKING DOWN 'Terminal Year'
The terminal year is considered for tax and estate handling purposes. The deceased will be subject to tax liabilities on any income earned, or realized, during the terminal year, similarly to previous years of taxation. Certain deductions, income and assets may receive special tax treatment during the terminal year, as part of the estate taxation process. Certain tax forms are required to be filed for the terminal year of the decedent. In Canada and the United States, for example, the surviving spouse, executor or administrator of the estate must file a "final return" on behalf of the decedent.