If you’ve struggled to keep up with the names of the players on your favorite low-budget professional sports team, you would appreciate “Whose on First?,” the classic comedy routine by Abbott & Costello. Confusion over proper roles, titles and responsibilities related to the administration of a trust or estate can similarly arise following the death of a loved one. Our law firm is currently administering a greater number of trust and estates than normal. According to the CDC, mortality rates are 8-12 percent higher in winter months than in other seasons. As occasioned by winter, the most morbid season of the year, in this month’s update I share a brief overview of the tasks associated with administering assets following death. Surviving family should involve the appropriate professionals and have a clear understanding of “who is on first” when it comes to trust and estate administration.
While every situation is different, here are three general categories of the tasks, and who should e involved in each task to be completed:
Debts, Expenses and Taxes
First, the deceased’s named fiduciary[i] must confirm the legitimacy of any outstanding debt and expenses and arrange for necessary tax filings. For purposes of ascertaining the status of the tax filings, it is critically important that the fiduciary correspond with the deceased’s CPA. The fiduciary must:
- Arrange for the payment of legitimate debts and expenses;
- File a final personal income tax return for the year of death;
- Determine if post-death income requires the filing of an income tax return on behalf of the trust or estate;[ii] and
- Determine if any estate tax returns need to be filed.[iii]
Once the Fiduciary determines the necessity of the returns, the Fiduciary should work with the CPA and the team to file the necessary returns on a timely manner. Our blog includes a timeline for tax filings.
Inventory of Assets
Second, the fiduciary must gather a complete list of all assets. The asset summary, called an “Inventory,” should categorize all assets into one of four categories:
- If assets are jointly-owned, the surviving owner should coordinate a plan with Veritage Law Group to become the sole owner; this process should be completed by the surviving owner and is outside the scope of the duties of the Fiduciary.
- If assets pass by beneficiary designation, the named beneficiaries should be directed to follow up directly with the account administrator; this process is outside the scope of the duties of the Fiduciary;
- If assets pass by a trust, the Trustee should engage Veritage Law Group to commence trust administration, which includes documents by which the Trustee accepts and certifies her role as trustee, and obtains a tax identification number specific to the trust.
- If assets fit in none of the listed categories listed, the asset is considered a “probate” asset, and the named Fiduciary must engage with Veritage Law Group to commence probate administration. While the probate administration process is more cumbersome than a trust administration (a summary of the probate process is available here) the Personal Representative would ultimately obtain legal authority to act on behalf of the estate to carry out the Decedent’s wishes.
Administer the Trust or Estate
Third, and finally, an estate or trust must be administered according to the will or trust agreement.
- The Fiduciary must value assets for purposes of preparing the assets for distribution. The Fiduciary must work closely with the decedent’s financial advisory team to not only ascertain the date-of-death values, but also understand the peculiarities of the investment portfolio to create an efficient transfer strategy.
- The Fiduciary must receive requests from the beneficiaries as to what, if any, of the existing inventory of assets should be used to satisfy each beneficiary’s share. When none of the named beneficiaries receive to wish to receive a unique or indivisible asset as part of her or his “share” (e.g., a residence), the Fiduciary is charged with selling the asset.
- The Fiduciary should engage Veritage Law Group to prepare legal agreements by which each beneficiary agrees to a plan for the distribution of assets and release the Fiduciary from any future legal liability for making distributions.
According to the Biblical proverb, “Without counsel plans fail, but with many advisors they succeed.”[iv] In some cases, decedents have done such a great job that little legal work is necessary following death. Even in those cases, however, many families appreciate the opportunity to meet with us and, quite literally, “check the boxes” on the types of checklists provided here to assure themselves that the estate plan has been properly implemented.
[i] The legal duties for this role fall to the Personal Representative, if there is a probate administration, or else the Trustee of a Revocable Trust.
[ii] If income earned by the estate or trust exceeds $600 in the first fiscal year following death, a fiduciary return needs to be filed.
[iii] For Minnesota residents, if the total value of the decedent’s assets exceeds $3.0 million, a Minnesota and federal estate tax return needs to be filed, even if no taxes are due by reason of marital or charitable deductions.
[iv] Proverbs 15:11.