Introduction 1
About This Book 1
Conventions Used in This Book 2
What You’re Not to Read 3
Foolish Assumptions 3
How This Book Is Organized 3
Part 1: Getting Started with Estate and Trust Administration 4
Part 2: Administering an Estate 4
Part 3: Operating a Revocable or Irrevocable Trust 4
Part 4: Paying the Taxes 4
Part 5: The Part of Tens 5
Icons Used in This Book 5
Beyond the Book 6
Where to Go from Here 6
Part 1: Getting Started with Estate and Trust Administration 7
Chapter 1: Operating in a Fiduciary World 9
Identifying the Players 10
Determining an estate’s fiduciaries 10
Knowing who the trustees are 11
Lining up your team of advisors 13
Estate of Change: Delving into Estates 13
Altering the status quo 14
Probating an estate 14
Collecting the estate’s assets 14
Paying expenses and making distributions 15
Tying up the estate’s loose ends 15
Operating a Trust 15
Understanding your duties as trustee 16
Putting assets into trust 16
Putting the trust to work 16
Discovering the purpose of the trust 16
Compiling and organizing trust records 17
Bringing the trust to its conclusion 17
Paying Uncle Sam 17
Compiling the estate tax return 17
Figuring out the income taxes 18
Planning an income tax strategy 18
Whipping together Schedule K-1 18
Chapter 2: Exploring the Ins and Outs of Estates 19
Defining the Estate for Probate Administration Purposes 20
Will Power: Understanding How a Will (Or No Will) Affects an Estate 21
Dying testate 21
Dying intestate 22
Taking a Look at Who Can Inherit 23
Surviving spouse 23
Individuals omitted from the decedent’s will (including intentional disinheritance) 25
The other players: Devisees and legatees 26
Heirs-at-law 26
Defining the Estate for Tax Purposes 27
Transfer taxes 27
Other taxes 30
Chapter 3: Identifying Different Types of Trusts 31
Differentiating for Income Taxes: Grantor versus Non-Grantor Trusts 32
Grantor trusts 32
Non-grantor trusts 33
Intentionally defective grantor trusts 33
Creating Trusts during Lifetime and after Death 34
Trusts created during lifetime 34
Trusts created under a last will 35
Grasping Revocable Trusts 35
Still breathing: Living trusts 36
Tackling Totten Trusts 37
Going incognito: Nominee trusts 38
Understanding Irrevocable Trusts 38
Making gifts to an irrevocable trust 39
Getting the maximum tax benefit out of dying: Marital trusts 40
Protecting the estate tax exemption: Credit shelter trusts 44
Grandpa (or Grandma) knows best: Grandchildren’s trusts 45
Better safe than sorry: Insurance trusts 45
It’s only a name, not a description: Crummey trusts 47
Keeping a finger in the pie: Grantor-retained interest trusts 48
Exploring Charitable Trusts 50
Split-interest charitable trusts 51
Non-operating charitable foundations 52
Owning SubChapter S Shares in Trust 53
Qualified SubChapter S Trusts (QSSTs) 53
Electing Small Business Trusts (ESBTs) 54
Chapter 4: Assembling Your Team Members and Knowing When to Use Them 57
Finding What You Need to Go It Alone 57
Finding an Attorney 59
Knowing where to look 59
Asking the right questions 61
Discussing payment options 62
Finalizing your decision 63
Working with your attorney 63
Hiring a Tax Professional 65
Discovering where to look 65
Discussing payment options 66
Considering Help from Other Pros 66
Determining whether you need an investment advisor 67
Obtaining appraisers where necessary 69
Consulting with other miscellaneous pros 70
Recognizing Malpractice 71
Surveying why malpractice occurs 71
Covering your ass ets 72
Part 2: Administering an Estate 73
Chapter 5: Taking the First Steps after Death 75
Addressing the Immediate Concerns When Someone Dies 76
Honoring anatomical gifts 76
Having an autopsy performed 76
Arranging the Funeral 77
Making important decisions 77
Obtaining copies of the death certificate 82
Understanding How Death Changes Everything about the Decedent’s Assets 83
Bank accounts and the need for funds 83
Powers of attorney 84
Locating the Estate-Planning Documents 84
The Last Will and testament (The Will) 84
Trust agreements and amendments 85
Letters of intent 86
Other documents that dispose of property 86
Notifying Those Who Need to Be Notified 86
Creating Calendars and Files 89
Eyeing what kind of calendar to create 89
Setting up a filing system 90
Chapter 6: Navigating the Probate Process 93
Filing the Last Will with the Probate (Or Equivalent) Court 94
Figuring Out Whether Administration Is Necessary 95
Do you need a temporary executor? 95
Do you need a special administrator? 97
Determining domicile 98
Accessing ancillary administration 99
Deciding What Shape Your Probate Procedure Should Take 100
Taking small estate shortcuts 101
Traveling the traditional probate route 103
Taking Important First Steps after Your Appointment 107
Eyeing the Surviving Spouse’s Rights and Decisions Regarding Property 109
Exercising rights ahead of the provisions of the will 109
Electing against the will 109
Claiming dower 110
Chapter 7: Marshalling and Liquidating Assets 111
Understanding Why You Need to Determine What the Decedent Owned 112
Observing the Obvious: Big-Ticket Items 113
The bricks and mortar: Real estate 113
Things that move: Cars, boats, and cycles 114
Small (and closely held) businesses 114
Tracking Down All the Other Assets 115
Reading the mail 116
Perusing other personal papers 118
Finding the hiding places 118
Emptying the safe deposit box 119
Sleuthing for digital assets and info 120
Checking over prior tax returns 121
Listing Personal and Household Effects 122
Appraising the Property 123
Tangibles 124
Intangibles 125
Real estate 127
Contacting the Employer about Employee Benefits 127
Locating and Collecting Insurance Proceeds 129
Ascertaining Any Other Death Benefits 130
Preparing and Filing the Probate Inventory 132
Liquidating Assets 132
Selling stocks, bonds, and other securities 133
Disposing of real estate 134
Chapter 8: Paying the Debts, Expenses, Bequests, and Devises from the Estate 135
Determining and Paying Debts of the Decedent and Administration Expenses 136
Finding out how and when to pay claims 136
Prioritizing payment 138
Declaring the estate insolvent 140
Informing Potential Beneficiaries of Their Right to
Consider Disclaimer 140
Segregating and Distributing Specific Property 142
Treading slowly before distributing 142
Making the distributions 143
Considering tangible property 144
Looking at intangible property 144
Fulfilling bequests of specific dollar amounts 145
Dividing Other Personal Property Equitably 146
Basing division on letter of intent 146
Creating a system for heirs to choose 147
Disposing of unwanted personal property 147
Slicing Up the Residue 147
Chapter 9: Closing the Estate 149
Obtaining Tax Closing Letters 149
Acquiring Releases of Lien for Real Estate 150
Paying Final Administration Expenses 151
Making Final Distributions to Residuary Beneficiaries 152
Preparing and Filing Final Estate Income Tax Returns 153
Readying Accounts for Allowance by the Probate Court 153
Using the appropriate form of accounting 154
Following the proper probate procedures 155
Remembering filing fees 158
Appointing a guardian ad litem, if needed 158
Filing a military affidavit, if necessary 158
Notifying the surety 158
Part 3: Operating a Revocable or Irrevocable Trust 159
Chapter 10: Understanding the Trustee’s Duties 161
Getting Acquainted with the Trust Instrument 162
Creating a plan based on the trust’s terms 162
Identifying the players 163
Reforming the trust 164
Empowering the Trustee 165
Buying and selling assets 165
Determining distributions to beneficiaries 165
Hiring and firing advisors 167
Coloring Inside the Lines: Understanding Fiduciary Duty and Limitations 168
Exercising discretion 168
Obtaining errors and omissions insurance 169
Protecting the Trust’s Assets 169
Diversifying the assets 170
Asking for help 170
Preparing and Filing Annual Income Tax Returns and Accounts 171
Chapter 11: Funding the Trust 173
Putting Assets in Trust during Life 173
Signing It Over: Giving the Trust Asset Ownership 174
Cash and securities 175
Privately held stocks, promissory notes, and limited partnership interests 177
Real estate 178
Life insurance policies 180
Personal and household property in trust 183
Rolling Property into Trust after Death 185
Chapter 12: Investing the Trust’s Assets and Paying Its Expenses 187
Appreciating the Importance of Income and Principal in Trust Administration 188
Defining principal and income 188
Distinguishing between the two 189
Using Investment Advisors Effectively 191
Holding and Diversifying Assets 192
Stocks 193
Bonds 193
Mutual funds 195
Cash needs 197
Real estate 198
Small business stocks 198
Going Green in a Trust 199
Socially conscious 200
Politically aware 200
Looking to the Beneficiaries’ Needs 201
Age 202
Purpose of trust 202
Paying the Trust’s Expenses 204
Trustee’s fees 204
Investment advice 205
Accounting fees 205
Taxes 205
Chapter 13: Paying Trust Beneficiaries 207
Notifying Beneficiaries of the Trust 208
Obtaining addresses and Social Security numbers 208
Verifying dates of birth 209
Determining Scheduled Distributions 209
Figuring out how much to pay 210
Creating a payment schedule 213
Distributing When the Beneficiary Reaches a Specific Age 214
When Beneficiaries Request More Money: Paying Out Extra Distributions 215
Making the Decision to Distribute Discretionally: Eyeing the Trust’s Terms 217
Ensuring health and well-being 217
Paying for education 217
Buying a home 218
Starting a business 219
Using trustee discretion 219
Chapter 14: Creating and Keeping Trust Records 221
Creating a Filing System 221
Getting started: Organizing the right way 222
Keeping the trust instrument handy 224
Compiling correspondence 224
Filing financial records 225
Preserving annual accounts 225
Referencing tax returns 226
Preparing an Initial Inventory and Valuing the Assets 227
Arriving directly from the donor 227
Coming from the donor’s estate 228
Compiling Records of All Transactions 228
Knowing the difference between income and principal 228
Filing income tax returns annually 229
Producing Annual Trust Accounts 230
Assembling the desired information 230
Obtaining assents of beneficiaries 232
Filing with the probate court 232
Chapter 15: Terminating the Trust 235
Distributing All Assets According to the Trust Instrument 235
Calculating final income distributions 236
Holding back funds for final taxes and fees 237
Paying the remaindermen 238
Submitting the Final Income Tax Returns 240
Determining any final tax liability 241
Filing a short-year return 241
Preparing Final Accounting and Obtaining Assents of All Remaindermen 242
Finally finishing a non-probate trust 242
Polishing off a probate trust 243
Dealing with Outliers after the Trust Terminates 244
Part 4: Paying the Taxes 245
Chapter 16: Preparing the Estate Tax Return, Part 1 247
Figuring Out Which Estates Must File 248
Who must file 248
Who actually files Form 706 and when 249
Obtaining a Release from Personal Liability 250
Understanding Some of the Nitty-Gritty Rules for Filing Form 706 251
Where and how to file 251
How to pay the tax 251
Penalties for late filing, late payment, and understatement of valuation 252
Signature and verification 253
Extensions of time to file and pay tax 253
Supplemental documents 255
Completing the Form 706, Pages 1–4 257
Part 1: Decedent and Executor 257
Part 2: Tax Computation 257
Signature of executor(s) 259
Signature of preparer other than the executor 259
Part 3: Elections by the executor 259
Part 4: General Information 262
Part 5: Recapitulation 265
Part 6: Portability of Deceased Spousal Unused Exclusion (DSUE) 265
Being Ready for and Handling an Audit 266
Getting an Estate Tax Closing Letter 267
Chapter 17: Preparing the Estate Tax Return, Part 2 269
Tackling the Most Common Schedules 269
Focusing on real estate: Schedule A 270
Identifying stocks and bonds: Schedule B 271
Addressing mortgages, notes, and cash: Schedule C 276
Considering life insurance: Schedule D 277
Eyeing jointly owned property: Schedule E 278
Considering other property: Schedule F 279
Touching on funeral and administration expenses: Schedule J 281
Recording debts, mortgages, and liens: Schedule K 285
Listing net losses and such: Schedule L 286
Covering bequests to a surviving spouse: Schedule M 287
Recording charitable, public, and similar gifts and bequests: Schedule O 289
Knowing When to Ask for Help 290
Listing transfers during life: Schedule G 290
Exercising powers of appointment: Schedule H 291
Considering annuities: Schedule I 291
Claiming a credit for foreign death taxes: Schedule P 292
Getting a credit for tax on prior transfers: Schedule Q 292
Generation-Skipping Transfer tax: Schedule R 292
Electing a qualified conservation easement exclusion: Schedule U 293
Filing a protective claim for refund: Schedule PC 293
Chapter 18: Filing Income Tax Returns for a Decedent, Estate, or Trust 295
Before You Begin: What You Need to Do 296
Obtain a federal tax ID number 296
Choose a tax year-end 297
Calculating the Income 298
Interest 298
Dividends 299
Business income 299
Capital gains and losses 300
Income from rents, royalties, partnerships, and other estates and trusts 302
Farm income or loss 303
Ordinary gain or loss 303
Other income 304
Deducing Deductions 304
Interest 305
Taxes 306
Fiduciary fees 306
Charitable deductions 307
Attorney, accountant, and preparer fees 308
Miscellaneous itemized deductions 308
The Income Distribution Deduction (Schedule B) 309
The estate tax deduction 311
Taxes owed 311
Credits 315
Additional taxes 316
Answering the Questions on the Back of Page 2 (Form 1041) 317
Chapter 19: Weighing Income Tax Implications 319
Timing Payments In and Out of an Estate 320
Benefitting from the estate’s fiscal year 320
Balancing the estate’s taxable income against the beneficiary’s 321
Timing the receipt of income 323
Paying the ongoing expenses of the estate 323
Investing to Minimize Income Taxes 324
Limiting the fiduciary’s income taxes 324
Protecting the beneficiary 326
Introducing the Unearned Income Medicare Contribution (UIMC) Tax 327
Calculating the tax 328
Lessening the tax’s impact 328
Chapter 20: Reporting Tax Info on Schedule K-1 331
Understanding Schedule K-1 331
General information 332
Income items 335
Deductions and credits 336
Alternative minimum tax information 337
Allocating Types of Income on the K-1 338
Preparing Supplements to Schedule K-1 339
Showing foreign tax allocations 339
Providing state tax information 340
Creating Nominee Form 1099s 340
Part 5: The Part of Tens 343
Chapter 21: Ten Pitfalls for the Unwary 345
Failing to Terminate an Existing Real Estate Purchase and Sale Agreement 345
Taking a Lump Sum Distribution from a Pension Plan, IRA, or Deferred Compensation Plan 346
Creating a Feeding Frenzy When Splitting Personal Property 347
Missing Court Deadlines 348
Forgetting Tax Filing Deadlines 348
Failing to Communicate with the Heirs and Legatees 349
Exercising Poor Fiduciary Judgment 349
Underestimating the Devotion Required 350
Taking Nonsanctioned Shortcuts 350
Paying from the Wrong Pocket 351
Chapter 22: Ten Types of Taxes You May Have to Pay 353
Federal Gift Tax 354
Federal Estate Tax 354
Generation-Skipping Transfer Tax 354
State Inheritance or Estate Tax 355
Estate and Trust Income Taxes (Federal and State) 356
Decedent’s Final Federal and State Income Taxes 356
Local Income Taxes 357
Local Real Estate Taxes 357
State Intangibles Taxes 357
Excise Taxes 358
Appendix A: Glossary 359
Appendix B: State-By-State Rules of Intestacy and Estate or Inheritance Tax 369
Index 401
