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ESTATE
AND TRUST ADMINISTRATION
Proper
administration of a decedents estate involves a variety of steps.
When an individual passes away, an executor is typically
appointed in a will to handle the administration of the estate.
In the absence of a will, an administrator is appointed.
Regardless of title, either is the representative of the estate
and is legally responsible to ensure that all necessary steps are taken
to comply with the laws regarding creditors, taxation, and distribution
to beneficiaries.
In
New Jersey, the executor must initially file the will for probate with
the Surrogate of the county in which the decedent resided at the time of
his or her death. After
this step is taken, the executor is charged with the responsibilities of
opening an estate account from which any claims against the estate are
to be paid and to retitle the assets from the decedents name into the
name of the estate. In
order to undertake these steps, a tax identification number must be
acquired because an individuals social security number becomes invalid
upon death. In addition,
the executor should file a variety of forms with the Internal Revenue
Service and the Surrogate to ensure that he or she is not held
personally liable for any debts of the estate.
There
are three primary taxes which are levied upon an individuals death: (1)
the federal estate tax, (2) the New Jersey State Transfer Inheritance
Tax, and (3) federal and state income taxes.
The executor needs to determine whether or not the first two
taxes are to be paid. However,
the income taxes must always be addressed by an executor on income
generated on estate assets between the decedents date of death and the
date of distribution to beneficiaries.
In
order to properly conclude an estate, an accounting must be given to all
beneficiaries and a release and refunding bond signed by each
beneficiary which is then filed with the Surrogate in which all
beneficiaries acknowledge the receipt of their share of the estate,
discharge the executor from further obligation to the estate, and accept
pro rata responsibility for any proper debts imposed upon the estate
subsequent to receiving distribution.
In
many cases, a trust is established either as part of a will or as an
independent document. The
trustee has a very serious responsibility to all beneficiaries of the
trust. The trustee is
responsible for complying with the Prudent Investor Act.
This law requires that the trustee invest the trust assets
prudently. Prudently means
that not only must the assets be preserved but they must be invested for
grown for the benefit of the beneficiaries.
Non-professional trustees are best advised to delegate this
function to professional trustees or trustee advisors.
Family member can continue to serve as trustee under this
arrangement.
Another
law, which the trustee must comply, is the Principal and Income Act.
Under this act, certain items are designated as income and other
items are designated as principal.
This is extremely important under trust law, as it will affect
distributions to various beneficiaries.
Periodic accountings must be rendered by the trustee and they
must comply with the Principal and Income Act.
In
addition to these two laws, the trustee must file appropriate tax
returns. These include
federal and state 1041’s, which are income tax returns for the trust
and K-1’s, which are given to beneficiaries to indicate income
distributions. A trustee
beginning to serve in that capacity must be careful not to take on
liability for acts not properly done by the executor.
An
executor, an administrator and a trustee have significant personal
liability to taxing authorities and to all of the beneficiaries of an
estate. A good faith effort
by the fiduciary to be fair and reasonable will not protect the fiduciary
from this liability. Serving
as fiduciary is a complex undertaking, which should not be attempted
without professional assistance. |
