What Paperwork Is Needed after Someone Dies?

Tax return issues, family matters, business associates, partners, trustees, bankers, investment advisors and tax collectors from the IRS to state and local taxing authorities all require attention after someone has died. There is a lot of work, and often a grieving family member finds it helpful to enlist the aid of a professional to lighten the load. A recent article, “Checklist for Working With a Decedent’s Estate” from Accounting Web, contains a list of the tasks to be completed.

General administration and legal tasks. At the very earliest, the executor should create a timetable with the known tasks. If you’ve never done this before, there’s no shame in enlisting help from a qualified professional. Be realistic about your familiarity with tax and legal issues and your organizational skills.

Determine with your estate planning attorney whether probate is necessary. Is the estate small enough for your state’s laws to allow you to expedite the process? Some jurisdictions can do this, others do not.

If an estate plan was created and executed properly, many assets may not need to go through probate. Assets like IRAs, joint tenancies, accounts that are POD, or Payable on Death and any assets with named beneficiaries do not require probate.

Gather information about family owners or others who may have a claim to the estate and who may have useful information about the assets. You’ll need to locate and notify heirs of the decedent’s passing.

Others who need to be notified, include charities named in the will. You’ll need to identify prior transfers to charities that were partial transfers, such as Charitable Remainder Trusts. If there is a charitable remainder trust with a retained lifetime income interest, it will need to be in the estate tax return, albeit with an offsetting estate tax charitable deduction.

Locate the important documents, including the will, any correspondence relating to the will, any letters explaining the decedent’s wishes, deeds, trusts, bank and brokerage statements, partnership agreements, prior tax returns, federal and state tax forms and any gift tax returns.

An estate planning attorney will be able to help determine ownership issues, including identifying assets and liabilities. This includes deeds, vehicle titles, club memberships, personal possessions and business assets, including copyrights and patents.

Social Security will need to be notified, as will Medicare, pension administrators, Department of Veteran Affairs, the post office, trustees, and any service providers.

Filing taxes for the last year of the person’s life and their estate tax filing needs to happen on a timely basis. Even if an estate tax return may not be required, it is useful to file to establish date of death values for assets. It is important to resolve income tax statute of limitation issues and any IRS or state examination issues.

Estate administration is a big job, especially if you’ve never done it before. Having the help of an experienced estate lawyer can alleviate much of the worry that comes with settling an estate.

Reference: Accounting Web (March 19, 2021) “Checklist for Working With a Decedent’s Estate”

What’s Happening to the Estate Tax?

Proposals now being considered by President Biden may expand the number of Americans who will need to pay the federal estate tax in one of two ways: raising rates and lowering qualifying thresholds on estates and increasing the liability for inheriting and selling assets. It is likely that these changes will raise revenues from the truly wealthy, while also imposing estate taxes on Americans with more modest assets, according to a recent article “It May Be Time to Start Worrying About the Estate Tax” from The New York Times.

Inheritance taxes are paid by the estate of a person who died. Some states have estate taxes of their own, with lower asset thresholds. As of this writing, a married couple would need to have assets of more than $23.4 million before they had to plan for federal estate taxes. This historically high exemption may be ending sooner than originally anticipated.

One of the changes being considered is a common tax shelter. Known as the “step-up in basis at death,” this values the assets in an estate at the date of death and disregards any capital gains in a deceased person’s portfolio. Eliminating the step-up in basis would require inheritors to pay capital gains whenever they sold assets, including everything from the family home to stock portfolios.

If you’re lucky enough to inherit wealth, this little item has been an accounting gift for many years. A person who inherits stock doesn’t have to think twice about what their parents or grandparents paid decades ago. All of the capital gains in those shares or any other inherited investment are effectively erased, when the owner dies. There are no capital gains to calculate or taxes to pay.

However, those capital gains taxes are lost revenue to the federal government. Eliminating the step-up rules could potentially generate billions in taxes from the very wealthy but is likely to create financial pain for people who have lower levels of wealth. A family that inherited a home, for instance, would have a much bigger tax burden, even if the home was not a multi-million-dollar property but simply one that gained in value over time.

Reducing the estate tax exemption could lead to wealthy people having to revise their estate plans sooner rather than later. Twenty years ago, the exemption was $675,000 per person and the tax rate was 55%. Over the next two decades, the exemption grew and the rates fell. The exemption is now $11.7 million per person and the tax rate above that amount is 40%.

Lowering the exemption, possibly back to the 2009 level, would dramatically increase tax revenue.

What is likely to occur and when, remains unknown, but what is certain is that there will be changes to the federal estate tax. Stay up to date on proposed changes and be prepared to update your estate plan accordingly.

Reference: The New York Times (March 12, 2021) “It May Be Time to Start Worrying About the Estate Tax”