ESTATE & TRUST ADMINISTRATION

We assist our clients in navigating the many issues at a difficult time involved in administering an estate or trust after the death of a loved one.

After an individual’s death, his or her assets must be gathered, business affairs settled, debts paid, necessary tax returns filed, and assets distributed as the deceased individual (generally referred to as the “decedent”) directed. These activities generally will be conducted on behalf of the decedent by a person acting in a fiduciary capacity, either as executor or as trustee, depending upon how the decedent held his or her property. As a general rule, the administration of an estate or trust after an individual has died requires the fiduciary to address certain routine issues and follow several standard steps to distribute the decedent’s assets in accordance with his or her wishes. We advise and assist executors and trustees in fulfilling these legal responsibilities.

 Probate Process. If the decedent held assets titled in his or her name at death, the Last Will and Testament will need to be probated for the executor to be able to manage the affairs of the estate. If the decedent did not have a Will, then an administration of the estate will be necessary.

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Managing Estate Assets. It is the fiduciary’s responsibility to take control of (marshal) all assets comprising an estate or trust. Especially when a fiduciary assumes office at the grantor’s or testator’s death, it is crucial to secure and value all assets as soon as possible. Some assets, such as brokerage accounts, may be accessed immediately once certain prerequisites are met.  Other assets, such as insurance, may have to be applied for by filing a claim. An appraiser will often need to be engaged to value the decedent’s tangible property and real estate. Besides providing a valuation for assets that may be reported on a state or federal estate tax return, the appraisal can help the fiduciary gauge whether the decedent’s insurance coverage on the assets is sufficient. Appropriate insurance should be maintained throughout the fiduciary’s tenure. The fiduciary also must value financial assets, including bank and securities accounts.

Handling Debts and Expenses. It is the fiduciary’s duty to determine when bills unpaid at death, and expenses incurred in the administration of the estate, should be paid. The fiduciary can be held personally liable for improperly spending estate or trust assets or for failing to protect the estate assets properly, such as by maintaining adequate insurance coverage. Most expenses that a fiduciary incurs in the administration of the estate or trust are properly payable from the decedent’s assets. These include funeral expenses, appraisal fees, attorney’s and accountant’s fees, and insurance premiums.

Filing Tax Returns. The fiduciary may be responsible for filing a number of tax returns. These tax returns include the final income tax return for the year of the decedent’s death, a gift or generation-skipping tax return for the current year, if needed, and prior years’ returns that may be on extension. It is not uncommon for a decedent who was ill for the last year or years of his or her life to have missed filing returns. The only way to be certain is to investigate. In addition, if the value of the estate (whether under a will or trust) before deductions exceeds the amount sheltered by the estate tax exemption amount ($11.4 million in 2019), a federal estate tax return will need to be filed.  Even if the value of the estate does not exceed the estate tax exemption amount, a federal estate tax return still may need to be filed.  Under the concept of portability, if the decedent is survived by a spouse and he or she intends to use any estate tax exemption the deceased spouse did not use, an estate tax return must be filed.

Since the estate or trust is a taxpayer in its own right, a new tax identification number must be obtained and a fiduciary income tax return must be filed for the estate or trust.  The decedent’s social security number cannot be used for the estate or any trusts that exist following the decedent’s death.

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Funding Bequests. Wills and trusts often provide for specific gifts of cash or property before the balance of the property, or residue, is distributed. The residue may be distributed outright or in further trust, such as a trust for a surviving spouse or a trust for minor children. The fiduciary must be sure that all debts, taxes, and expenses are paid or provided for before distributing any property to beneficiaries and may be held personally liable if insufficient assets do not remain to meet estate expenses.

Trust Administration. Trusts are designed to distinguish between income and principal.  Many trusts, especially older ones, provide for income to be distributed to one person at one time and principal to be distributed to that same person a different time or to another person. For example, many trusts for a surviving spouse provide that all income must be paid to the spouse, but provide for payments of principal (corpus) to the spouse only in limited circumstances, such as a medical emergency.  At the surviving spouse’s death, the remaining principal may be paid to the decedent’s children, to charity, or to other beneficiaries.

During the period of administration, the fiduciary must provide an annual income tax statement (called a Schedule K-1) to each beneficiary who is taxable on any income earned by the trust. The fiduciary also must file an income tax return for the trust annually. The fiduciary can be held personally liable for interest and penalties if the income tax return is not filed and the tax paid by the due date.

Closing the Estate. Estates may be closed when the executor has paid all debts, expenses, and taxes, has received tax clearances from the IRS and the state, and has distributed all assets on hand. Trusts terminate when an event described in the document, such as the death of a beneficiary, or a date described in the document, such as the date the beneficiary attains a stated age, occurs.  The fiduciary is given a reasonable period of time thereafter to make the actual distributions. Finally, a final income tax return must be filed and a reserve kept back for any due, but unpaid, taxes or estate expenses.

We have years of experience handling estate and trust administration matters and can guide you through every step of the process.

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