By: Sam Maness, JD CFP®
Losing a family member is one of most challenging life events many of us will ever experience. In many instances, the grieving process is coupled with tremendous responsibility – managing final arrangements, supervising the decedent's assets and personal affairs, and settling the estate. We’ve helped a number of investors navigate this difficult process. Below is a short summary of important things to think about in these situations – and if you or someone you care about needs help with the process, please let us know.
Notification to Third Parties
There is a long list of people and organizations you should consider notifying when a loved one passes away. These include government agencies, banks & financial institutions, mortgage providers, investment companies, insurance carriers, credit reporting agencies, clubs/memberships, and the do not contact list. The U.S. Departments of Veterans Affairs puts together a great checklist, available here. This AARP guide also offers a timeline and more detailed instructions for carrying out a funeral or memorial service.
Review the Estate Plan
Locating and reviewing the decedent’s estate plan should be an early step in the planning process. You will want to identify the decision-makers within those documents to better understand what happens next. If the estate passes via will, the Personal Representative or Executor will carry out the estate transfer process, and likely need approval from the local probate court before transferring any assets or valuables. To better understand the probate process, residents in our home state can review this Michigan probate overview to learn the basics. Trust assets are controlled by the trust agreement – generally the agreement lists a Successor Trustee who acts as the fiduciary charged with making decisions on behalf of the trust beneficiaries.
If you are a decision-maker - the Trustee, Personal Representative or Executor of the estate – we recommend you contact us or bring the legal documents to an estate planning attorney to get started.
Securing the Home and other Real Property
There are a number of special considerations for real property. In most cases, the complexity of these situations means your best bet is consulting with an experienced attorney. Below I’ve included a short list of common issues.
Access – Who has access to the property? Does it need to be secured? If there are tenants, does any action need to be taken?
Maintenance & expenses – Payments could include the mortgage, taxes, association dues, utilities, insurance, and mortgage. If the property requires maintenance or upkeep, work with service providers or trusted third parties.
Title – You will need to determine the status of title – it is not uncommon to be surprised by who is actually listed on the deed. A title company can perform a title search prior to any sale or transfer to confirm ownership.
Transfer of ownership – Research your options and consult with an attorney before executing a transfer of real estate. Most states have prepared a standard form for transactions, but these are rarely appropriate when the seller is a fiduciary acting on behalf of a trust or estate. Also, even if between family members, tax implications are important to consider - Michigan has complex rules for transfers of ownership and if structured incorrectly, a transfer could significantly raise the assessed taxable value of the real estate for the recipient.
Trusts & estates have separate tax forms and file taxes separately from the decedent – you will need to obtain tax identification numbers for any trust or estate. You can use the IRS website to apply online for trust/estate tax identification numbers. The process is pretty straightforward in many instances, but you may want to engage your accountant, estate planning attorney, or financial advisor to help file these applications.
The tax rules surrounding trusts & estates are fairly complicated. You should work with a CPA or experienced estate planning attorney to prepare and complete these forms. A few key forms, deadlines, and practice tips are summarized below.
Form 1040 Income Tax Return (decedent)
- Applicable from Jan 1st calendar year up until D/O/D
- Due date 3.5 months after end of fiscal year (April 15 if calendar year)
Form 1041 Estates & Trust Income Tax Return
- Required when gross income is over $600 or beneficiary who is non-resident alien
- For trusts, any taxable income triggers need for tax return
- Estates can use the calendar year or fiscal year
- Trusts require a calendar year
- Exception: A “645” election allows a Revocable Living Trust to be treated as a decedent’s estate for two years and allows a fiscal year calendar
- Extension: for complex trusts, or trusts that are not required to distribute 100% of income each year, the “65-day rule” allows the trustee to treat distributions made to trust beneficiaries during the first 65 days of the calendar year as if they were made in the preceding year
Form 706 Federal Estate Tax Return
- Required if above estate tax exemption amount (in 2019 = $11.4 MM)
- Required to preserve unused exemption for spousal portability
- Due date = nine months after death (+ additional extension of 6 months allowed)
Form 709 Gift Tax Form
- Due April 15 (10/15 extension)
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