Administering An Estate
When a
person dies, there are a great many issues that must be dealt with.
Obviously, there is the need to make funeral arrangements, to arrange
for organ donations, if applicable, and other "personal" matters. There
are also a number of legal and tax issues that must also be dealt with.
Fedele and Murray, P.C. can provide guidance through these complicated,
and often, very confusing issues. While no means exhaustive of all the
issues to be addressed, this summary will discuss a number of matters
that must be taken care of.
The Probate Process
If a person dies owning assets in their individual name, those assets
cannot be accessed or transferred without authority from the Probate
Court. This is true even if the decedent had a will. Having a Last Will
and Testament in place does not mean that probate can be avoided, but it
can sometimes make the process a little easier (at least as opposed to
the situation that can occur when the decedent has no will.) Certain
assets pass automatically and do not have to be "probated." For example,
assets that are jointly held will pass automatically to the surviving
joint owner(s), if any. Other assets can pass automatically by virtue of
a properly completed beneficiary designation. Examples of this latter
class of assets include life insurance policies, annuities, and
retirement assets (including, but not limited to, Individual Retirement
Accounts, 401(k) plans, profit sharing or pension plans, etc.). Assets
held in trust can also "avoid" probate. For a more detailed discussion,
see Probating An Estate.
Guardianship for Minor Children
If there are minor (generally under the age of 18) children who are
left orphaned by the decedent's death, a guardian must be appointed for
them by the Probate Court. If the decedent left a will naming someone to
serve as Guardian, that person will generally be appointed by the Court.
However, naming a person as Guardian in your will does not
necessarily guarantee that this person will be named. Your will only
nominates the person to serve as Guardian; it is up to the Probate
Court to confirm the appointment. While, in most cases, the person
nominated will be appointed by the Court, interested parties do have the
right to object to the nomination. In such case, the Court will hold a
hearing and make a decision based upon all the facts and circumstances.
Such contests over who should serve as Guardian often occur where there
has been a divorce and/or where other relatives believe the named
Guardian is not fit to serve.
Estate Tax Returns
Federal and/or state estate tax returns may be required if the total
value of the decedent’s assets exceed the applicable filing thresholds.
As of 2009, if the total value of all the decedent’s assets is less
than $3,500,000, no Federal estate tax return is required. For
Massachusetts purposes, the threshold is $1,000,000. (See
The "New" Massachusetts Estate Tax).
In
determining the total value of the decedent’s assets to determine
whether the applicable threshold is met, all of the decedent’s
assets must be considered. These include assets the decedent owned
individually, those owned through most, if not all, revocable trusts,
life insurance (the death benefit thereof if the decedent still
possessed any "incidents of ownership" over those policies), retirement
assets (even though the benefits thereof may pass directly to a named
beneficiary) and any other type of asset which the decedent possessed
some form of ownership or control over.
The estate
tax returns are due within nine months of the decedent’s death. If there
is a surviving spouse, there may be no estate tax owed, as assets
passing to the surviving spouse will typically qualify for the estate
tax marital deduction. Even in that case, however, an estate tax return
must still be filed even though there may be no estate tax owed.
For more
details about the Estate Tax process, see the discussion regarding
Estate Tax Returns.
Other Duties
In addition
to the probate process and filing any estate tax returns, there may be
other matters to be taken care of as well. Final income tax returns may
need to be filed. These may include filing returns for the prior year as
well as the partial year covering January 1 through the date of the
decedent’s death. If there is a surviving spouse, he or she can
generally file a joint tax return for the year in which the decedent
died. If the decedent had any type of trust in place, there may be a
need to make sure the trust is administered properly and that any and
all tax returns related to that trust are filed. (See details about
Trust Administration below.)
Post Mortem Planning
Even though a person has died,
there may still be estate planning opportunities available. These are
referred to as "post mortem" or "after death" techniques. There may be
situations where the decedent had no will, or the will did not properly
address all the issues facing the decedent’s family, and/or where
circumstances have changed such that it would be desirable to have a
different disposition of the decedent’s assets than might occur as a
result of intestacy or under the terms of a decedent’s will.
One common technique is to use
disclaimers to alter how the decedent’s assets will pass. For example, a
decedent may have left a will leaving his entire estate to his spouse.
At the time of death, the spouse is in poor health as well and it may be
advisable to have the assets instead pass to the alternate
beneficiaries, e.g., the children. The surviving spouse can disclaim or
give up her rights as beneficiary under the will such that the assets
will pass directly to the children. (For more information see
Disclaimers In Post Mortem Estate Planning.)
Another example of post mortem
estate planning involves decisions about estate taxation. Sometimes the
decedent and his spouse may have had a well designed estate plan in
place that is designed to minimize the overall estate taxes that would
be due upon both deaths,
i.e., taking advantage of the "optimum" marital deduction. (See
Marital Deduction Planning). In some cases,
even though the decedent’s estate plan would operate to eliminate any
estate taxes at his death, there are times when it can actually be
beneficial to pay taxes currently to reduce the taxes that will be due
later, i.e., in the surviving spouse’s estate. More often than not, the
benefits of paying taxes currently to reduce the overall taxes that
would be paid later are minimal, but there are always exceptions and it
is advisable to review the surviving spouse’s situation to determine
whether there is a potential to reduce the overall estate tax liability
by paying taxes currently.
Trust Administration
If the
decedent has a trust in place, then any and all assets that had been
transferred to that trust during the decedent’s lifetime and/or that are
payable to the trust upon death must be administered. The terms of the
trust will control how those assets are administered and reference
should be made to the actual trust instrument to determine what must be
done.
Generally,
the trust instrument will have named a trustee and/or a successor
trustee who manages and disposes of the trust assets. Much like the
court appointed Executor or Administrator, the trustee is a fiduciary
whose obligation it is to carry out the decedent’s wishes with respect
to the disposition of his assets.
The trust
will typically become a separate taxpayer for income tax purposes and
fiduciary income tax returns will need to be filed.
Return to Estate
Administration