Services for Personal Representatives and Executors of Estates

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Research the decendent's tax situation

Do you know the decedent was current with the filing and payment of taxes at the time of their death? What if the decedent is in collections and all the notices are being sent to the wrong address and no returns have been filed for the past 5 years? Its not as unusual as you might think. As a fiduciary, you must be sure that there are no outstanding liabilities to the government before any distributions are made. Be sure to ask your attorney about which creditors get paid first for an estate that might be insolvent.

Retrieving information about a deceased taxpayer for the IRS or state department of revenues is not simple. I have done this many times and know which documents and signatures are required. 

Required documents: death certificate, court appointment(s) for estate AND revocable trust (if any)

I will prepare:

Form 56, Form 2848, Form 4506-T to request federal account and wage & income transcripts for any open or unfiled years. Timeline: approx 3 weeks 

I can also request a history of gift tax returns filed by the decedent and request copies. This is required for Form 706 preparation. Timeline: 3-4 months

Each state has their own requirements to release information related to the decedent. Timeline: Varies

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Preparation of the decedent's individual income tax returns

Once the years required to be filed or amended are identified, I will prepare those tax returns. 

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There are several special issues specific to the final return of a taxpayer to keep in mind: 

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The final 1040 should be prepared by the same person that prepares the estate and/or trust income tax returns. This is to avoid duplicating the work of allocating the income an expenses between the returns. 

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Income and deductions January 1 through the date of death (1099 reporting is irrelevent) is reportable on the final 1040. I require account statements in addition to tax forms.

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If the decedent held EE Bonds, the fiduciary can elect to report the interest income accrued through the date of death. Whether this is beneficial depends on the financial situation of both the decedent and beneficiaries. It should always be discussed.

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Medical expenses paid within 1 year of the date of death are reportable on either the decedent's final 1040 OR on Form 706. The decision to report the medical expense on the final 1040 is an election and a statement must be prepared with the return. This is typically beneficial if no form 706 is required.

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This is not a comprehensive list of items unique to a decedent's final 1040. However, if your CPA does not at the very least ask you about the items listed above, I do not recommend hiring them.

Preparation of fiduciary income tax returns

A decedent's estate is required to file an income tax return (Form 1041) if its gross income, including proceeds from the sale of assets, exceeds $600 during its fiscal year. Consider filing if not required if the beneficiary itemizes to deduct the final year's net loss. 

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If the decedent had a qualified revocable trust, the fiduciary can make a 645 election to combine the 1041's for the probate estate and (formerly) revocable trust for at least the first two years. This is typically beneficial. An estate has many planning options to consider for the estate and beneficiaries.

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Many decedents create "testamentary" trusts that will last years after their death. A trust is required to file Form 1041 if it has gross income of $300 in a calendar year. 

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Documents required: 

Income allocation from the preparation of the final 1040

Will and/or Trust documents

Account statements, tax documents, and check registers

Beneficiary name, address, social security number

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Prepare Forms 706 and 709

If the decedent was married at the time of death, consider filing Form 706 to elect portability. Form 706 must be timely filed (including extensions) to elect portability. See Portability.

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If the gross estate of the decedent is greater than $5.45million for 2016 deaths, the estate is required to file Form 706. The gross estate includes the fair market value of all assets at death (including many trusts) + adjusted taxable gifts made during their lifetime.

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If you discover that the decedent made a gift required to be reported on Form 709 but did not file, consider filing.

Fiduciary Accounting Services

If there is a probate estate, the court will typically require an accounting report. Sometimes the attorney's office prepares this. Sometimes they tell you how to do it. Much of this work duplicates the bookkeeping I already had to do to prepare the fiduciary income tax return. I will work with your attorney to avoid duplicating work as possible. It might be beneficial for me to prepare the accounting so that it can be reconciled to the tax returns. 

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Many trust documents require annual financial statements to be prepared. Simple trusts require that the accounting income be distributed annually. Simple is not a description of the level of difficulty and accounting income for a trust uses a different basis of accounting than accounting for a business. It is not intuitive and an incorrect distribution amount an affect both current and future beneficiaries of the trust. As fiduciary, you are required to get it correct.