Chronicles of an Executor: Article #9
Taxes, Assets and Distributions
Source: Apartment News Magazine
By Timothy Gorman
Real Estate Broker/CPA/Entrepreneur
As the calendar marks a year since my father’s passing, time has stretched and compressed in bizarre ways—quick in its passage, yet sluggish because, believe it or not, we’re still tying up loose ends. Thankfully, we sidestepped the probate quagmire, which can now swallow a solid 24 months of your life! This ninth installment of my series dives deeper into the nuts and bolts of serving as a successor trustee. My journey has turned me from novice to nearly expert (at least in my own mind), inspiring me to help the AAOC develop a new 10-week program aimed at demystifying estate planning, launching this fall with a “crash course overview” on May 23rd, 2024. Having navigated the initial hurdles—notification of banks, coordination with attorneys, family meetings—the real work continues. It’s time to finalize the estate, a phase filled with tax filings and asset distributions, which are anything but straightforward.
Final Accounting: Think you know detailed? Try explaining the forensic value of $0.41 on an account statement—yes, you read that right. Armed with my auditor’s hat from my early days at a big accounting firm, I expected a breeze but faced a gale. Each round of queries opens another. The accounting is always the most difficult part of the trust administration and is the most common reason for litigation to occur. The lessons? Never underestimate the complexity of closing books. You are not done until every last dollar is accounted for and recorded. Be ready to get into the weeds. The successor trustee is a fiduciary holding other people’s money since there are other beneficiaries that have an interest in the trust. It’s crucial to show all those beneficiaries all transactions that have occurred.
Record Keeping: Time to be sharp, do not cut corners when it comes to being diligent. Scan every statement before you close or consolidate accounts—you’ll lose access faster than you can say “audit.” Secure written confirmations of all closures and transfers, not just for your accountants but for your lawyer’s review as well. Master both storage and, more importantly, retrieval of all documents; your sanity during final accounting will thank you.
Form 706: The unfamiliar beast for many CPAs. Estates over the federal limit of $13.61 million face a hefty 40% tax on excess transfers (this amount sunsets in 2026, so don’t get comfortable with this number), though previous gifts can reduce the bite. You generally have nine months to file this form. Savvy estate planning can lower or eliminate these taxes through trusts, business structures, and strategic gifting. Outside of the scope of the article, the 10-week AAOC course mentioned above will shoot to go a lot deeper into these strategies.
Regular Income Taxes: If the decedent didn’t settle taxes in their last year, brace yourself—you might file twice. Always update contact details to catch every necessary document.
Notifications to Banks and Other Institutions: Double-check everything before making changes. Premature notifications can trigger account freezes, a snag we nearly hit until securities were properly reissued in my name. Even though I was an officer in my company and official check signor, according to the bank, the only person able to make changes was an actual shareholder, my father that had passed away. I first had to transfer the shares and do the proper filings with the state, then make the banking change with this account. The lesson here being tread lightly! Helpful tip here, establish a strong relationship with a personal banker. The more they know you and your situation, the more they will be able to help clear obstacles and provide solutions. To date, I have ventured to the bank no less than six times to make changes. Be ready to get to know the inside of your bank!
Working with Your Attorney: The mantra here is “hurry up and wait.” Legal pros might be slow but know their rhythm. The final accounting mentioned above takes time and diligence. It has to be checked and double checked to avoid mistakes and costly litigation.
Communication with Beneficiaries: Keep it crisp, clear, in writing, and regular intervals. Avoid speculations; every word could be scrutinized by a court someday. In my experience, conflicts can be avoided by good communication (that means listening as well as speaking)!
In summary, this journey through estate administration is laden with intricate details and legal nuances, testing patience and demanding meticulous attention to detail. Stay tuned for my next article, where I’ll reflect on our major victories and missteps, hoping you’ll glean insights from both our triumphs and trials.