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As
an Executor, what tax returns must I consider filing?
The
Executor must consider filing taxes as follows:
A.
Federal Estate Tax Return (Form 706) must be filed by the Executor
for the estate of every U.S. citizen or resident whose gross estate, plus
adjusted taxable gifts, is more than $1,000,000 (unified credit) in 2002
and 2003.
B.
Gift Tax Return (Form 709).
If the decedent made gifts in excess of $11,000 to any one person
in any one calendar year.
C.
Income Tax
a.
Decedent’s final Federal 1040
b.
Decedent’s final State 1040
c.
Federal 1041 for the estate
d.
State 1041 for the estate
e.
K-1 to beneficiaries
f.
Form SS-4 to obtain an Estate Taxpayer’s Identification Number
g.
Form 2848 – if necessary to appoint someone has power of attorney
to deal with the I.R.S.
h.
New Jersey Inheritance Tax. (NJIT) in appropriate situations
i.
New Jersey Estate Tax (NJET)
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What
are the deadlines for filing the various tax returns?
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The
deadline for filing the decedent’s final federal and state 1040 is
April 15 following the year of death.
-
The
deadline for filing the federal and state 1041 for calendar year
estates is on or before April 15th.
For fiscal year estates, it is the 15th day of the
fourth month following close of the tax year.
-
The
deadline for filing the Federal Estate Tax Return Form 706 is nine (9)
months after the decedent’s date of death.
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The
deadline for filing the decedent’s Federal Gift Tax Return Form 709
is April 15 following the calendar year in which the gift was made.
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The
deadline for filing the New Jersey Inheritance Tax Return (NJIT) is
eight (8) months from the decedent’s date of death
-
The
deadline for filing the New Jersey Estate Tax Return (NJEST) is nine
(9) months from the decedent’s date of death.
What
personal liability do I have as Executor of an estate?
As
the Executor of an estate, you have personal liability to all taxing
authorities for any taxes that are due including interest and penalties
for late payments. In
addition the Executor has personal liability to all beneficiaries of the
estate for performance of the Executor’s duties under the Will. These
include compliance with the Uniform Principal and Income Act and the
Prudent Investor Act.
Is
a bond required of an Executor?
A
bond is required of an Executor unless it is waived by the Will, which is
commonplace. In cases where
there is no Will, an Administrator of the estate is always required to
post a bond.
What
is necessary to probate a Will?
To
probate a Will, the Executor takes it to the Surrogate’s office in the
county in which the decedent died. If
the Will is self proving which means it has two witnesses and a notary,
then no witnesses are required. The
Executor presents the Surrogate with a death certificate.
A check must be paid at the time of probate.
The check is normally between $50 and $100 depending on the length
of the Will and the number of short certificates required.
What
must a Trustee do to comply with the Prudent Investor Act?
Under
the terms of the Prudent Investor Act, trust assets must be invested not
only for safety but also for growth.
This requires a sophisticated investor.
Under the provisions of the Prudent Investor Act, this is a
function that the Trustee may delegate to a third party.
The Trustee has a duty to do due diligence to investigate the
ability of the third party to whom the investment function is delegated.
This relieves the Trustee of any duty with respect to investments.
Failure to comply with the Prudent Investor Act may result in
personal liability on the part of the Trustee.
How
does the Trustee comply with the terms of the Principal and Income Act?
The
Principal and Income Act is a very detailed law which specifies what items
are allocated to income and what items are allocated to principal.
Since most trust documents provide for distribution of income to
one beneficiary and principal to others, this is critical in the
administration of a trust. This
is a function, which the Trustee may wish to delegate to a third party.
By obtaining professional assistance, the Trustee may limit himself
or herself from personal liability.
What
tax returns must the trustee consider?
A
Trustee is responsible to prepare and file federal and state income tax
returns for each year of the trust. For
calendar year trusts, the 1041 must be filed on or before April 15th
following the end of each calendar year.
For fiscal year trusts, the 1041 must be filed by the 15th
day of the fourth month following the close of the tax year.
In addition, the Trustee is responsible for forwarding to
beneficiaries a K-1 with respect to any distributions made to the
beneficiaries. Preparation of
tax returns is another function for which the Trustee may wish to retain
professional assistance.
What
is the personal liability of a trustee?
Like
an Executor, the Trustee is responsible to the taxing authorities for the
prompt payment of all taxes when due and for any interest penalties or
late charges if the taxes are not promptly paid.
The Trustee has an enormous potential liability to all
beneficiaries of the trust. The
trust must be administered in accordance with its terms and the
beneficiaries are entitled to receive all benefits under the document. The
Trustee is held to a very high standard of care. The Trustee must never
self-deal. The Trustee must
comply with the terms of the Prudent Investor Act and the Principal and
Income Act. As our society
becomes more and more litigious, there are more suits filed against
Trustees for improper trust administration.
What
are the advantages of a Trustee obtaining the assistance of a law firm?
A
law firm can guide the Trustee with respect to compliance with the terms
of the Prudent Investor Act and with respect to the Principal and Income
Act. If desired the law firm
can prepare and file all the tax returns to insure that the taxes are paid
when due. The law firm can
pay all of the trust bills and render the accountings to beneficiaries on
a period basis. Finally, the
law firm can insure that there is no personal liability on the part of the
Trustee for improper trust administration.
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