Administering An Estate
When a person dies, there are a great many issues that must be handled. 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 handled. Fedele and Murray, P.C., can provide guidance through these complicated, and often, very confusing issues. While by no means exhaustive of all the issues to be addressed, this summary will discuss a number of matters that must be considered.
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 a 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 exceeds the applicable filing thresholds. As of 2020, if the total value of all the decedent’s assets is less than $11,580,000, no Federal estate tax return is required. For Massachusetts purposes, the threshold remains at only $1,000,000. (See The “New” Massachusetts Estate Tax). If either threshold is met, a return will be required. In the case of a married couple, the surviving spouse may want to file a Federal estate tax return even if the deceased spouse’s gross estate is under the $11,580,000 filing threshold.
Filing a return may be advisable to preserve the “portability” provisions of the current law. Under the current federal estate tax law, to the extent a decedent does not use his or her entire $11,580,000 exemption, the unused portion can be used by the surviving spouse someday. Thus, for example, if the deceased spouse’s estate is valued at $2,000,000, he or she would have an unused federal exemption of $9,580,000. That unused exemption can someday be used by the surviving spouse, effectively making the surviving spouse’s exemption $20,400,000 (under current law: $11,580,000 exemption for the second spouse plus the $9,200,000 unused portion of the first spouse’s estate.) To claim the deceased spouse’s unused exemption (“DSUE”), a Federal estate tax return must be filed at the first spouse’s death (even if no return would otherwise be needed because that spouse’s estate was under the federal exemption of $11,580,000).
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.
In addition to the probate process and filing any estate tax returns, there may be other matters to handle. 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.)
Even though a person has died, there may still be estate planning opportunities available. These are referred to as “postmortem” 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. It also may be the case where circumstances have changed such that it would be desirable to have a different disposition of the decedent’s assets than that which 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 a beneficiary under the will such that the assets will pass directly to the children. (For more information see Disclaimers In Postmortem Estate Planning.)
Another example of postmortem 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.
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.
Fedele and Murray, P.C., has the experience and depth of knowledge to help make sense of the entire estate administration process. To schedule an initial consultation, contact us online or call us in Norwood at 781-551-5900.