Many individuals - lacking the experience and expertise necessary to administer an estate or trust properly - have no idea of what this responsibility involves. Help may not, and probably should not, come from the attorney who prepared the will or trust because of the potential conflict of interest and ethical problem associated with the question of who they represent - the fiduciary, the estate or trust or the surviving spouse. CPA's, because of their extensive business and technical background, are in a unique position to provide professional services to individual fiduciaries. We have the ability to interact on a professional level with lawyers, brokers, financial planners, other accountants, insurance agents, realtors and members of the decedent's family.
Individual fiduciaries need professional help in several critical areas of estate and trust administration to get the job done. These areas include:
Yes, we will comment on these areas in the same order as they are listed above.
a. Decedent's final income tax returns
b. Fiduciary income tax returns
c. Federal estate tax returns
d. Generation skipping tax form
a. Qualified terminable interest property (QTIP) election. This election is made on the estate tax return to qualify all or part of the QTIP for the marital deduction. The effect of the election is to give the executor an opportunity to equalize the estates of the decedent and the surviving spouse relative to different income tax brackets that may exist. Alternatively, the executor can elect all of the QTIP for the marital deduction if deferring the estate to the surviving spouse's death is more advantageous. This must be approached with care because the election, one made, is binding.
b. Allocation of the generation-skipping tax (GST) exemption is an option that allows the allocation of the $1,000,000 GST to any property transferred from the decedent. This is an opportunity to shelter future asset growth and take advantage of lower estate tax brackets in each estate.
c. Administration expenses, medical expenses and casualty losses can be deducted on either the estate tax return or the fiduciary income tax returns. Careful planning and consideration to the relative tax brackets is necessary to make that determination.
d. Alternative valuation allows the estate to value assets at either the date of death or at an alternative valuation date, six months later. The timing of sales and distributions within that six month period is also important.
e. Special use valuations may be of value where a family business, farm or other special use situation exists. Before using the special use valuation, an executor must consider its effect on other estate tax issues such as the redemption election, section 6166 deferral election, minimization of taxes in the survivor's estate and other tax planning consideration.
f. Qualified disclaimers may be used to disclaim an interest in jointly owned property. Its use is primarily for tax planning but may also be a tool to correct a drafting error in a will or trust. To be effective, the disclaimer must be made within nine months of the date of death or when the interest came into being.
g. An extension of time for payment of federal estate tax may be allowed as follows:
1. A 12 month extension
2. A 10 year extension for reasonable cause
3. An extension for a reversionary or remainder interest.
4. A 5 year extension and 10 year installment payment for closely held business
These extensions should be considered in light of interest costs and the advantages, if any exist, of deferring the sale of assets to raise funds for taxes.
On occasion we will serve as executor or trustee for a large client or in special situations that allow the firm to be compensated appropriately for the work. Our fees are typically the same as those charged by bank trust departments. Special situations might involve hands-on operating assets that need to be stabilized and/or sold to allow the trust assets to be more liquid and more easily distributed.