I'm often asked why certain assets have to be probated and, correspondingly, what happens to the assets if no probate is opened. With limited exceptions, when a person dies owning assets in his or her name alone, those assets cannot be transferred to the intended beneficiaries without involving the Courts in a process known as probate. Probate is in fact the legal procedure through which the title to assets is transferred out the name of the deceased person and into the names of the beneficiaries. Consequently, probate is often unavoidable where a deceased person holds sole title to specific assets. If no action is taken with respect to such assets, they will in essence remain frozen. No one has authority to collect the asset or to direct the disposition of it. Ultimately, unclaimed assets may be escheated to the State by the third party holding any such asset on account of a deceased person.
Probate can rear its head in a number of situations. First, probate will likely come into play when a person neglects to do any planning for the transfer of his or her assets upon death. Probate issues can also pop up even when a person has engaged in some sort of planning. For example, problems frequently arise in the case where a person undertakes to make lifetime transfers or prepare estate planning documents without the guidance of a qualified legal practitioner. Additionally, if a person dies having a Will but no living trust, then the Will normally requires probate. Setting up a living trust usually involves the goal of avoiding probate. In this case, an unanticipated probate could still result when a person neglects to title one or more assets into the name of the living trust either at the point the trust is established or later when additional assets are acquired.
Many of you have already been exposed to a probate horror story or two. Probate has been depicted as slow, expensive and outdated. Complications such as owning property in other States or having interested persons who disagree over the disposition of the estate, can easily cause the costs to rise and delay the time it takes to complete the process.
What some people may fail to realize, however, is that probate is entirely a voluntary process. It only arises in connection with the estates of persons who have not taken appropriate steps to avoid probate. Indeed, there are plenty of good reasons to consider avoiding probate, whenever possible, including privacy matters, reduction of costs, and efficiency in the distribution of assets. Our team of estate planning attorneys can advise you as to effective strategies to avoid probate that are tailored to your unique situation. We can further counsel you on various methods available to facilitate post-death transfers of assets in certain circumstances without necessitating a full blown probate. The bottom line is that no one ought to be taken by surprise with unintended consequences affecting the disposition of his or her property.
Estate planning is often thought of something a person should do in their later years. However, there are a number of reasons why a person should not wait to do his or her estate planning earlier. The following U.S. News article, aimed at those under 40, provides a number of issues to consider:
-Attorney A. Collins Hunsaker
When a person (“Trustor”) establishes a revocable living trust during his or her lifetime for the Trustor’s benefit and the Trustor is the trustee of the trust, most of the time the trust is not required to file a separate income tax report, Form 1041. When the person creating the trust is also the beneficiary of the trust, the trust is “self-settled.” All income and deductions of the trust are reported on the Trustor-beneficiary’s individual income tax return, Form 1040. This saves the cost of the preparation and filing of an additional income tax return for the trust.
However, what happens when the Trustor-beneficiary dies? In addition to the decedent’s final income tax return, Form 1040, having to be filed, the trust now becomes a potential taxpayer and the trust may be required to file its own income tax return, Form 1041. The current trust filing requirements are if the trust has any taxable income or if the trust has gross income of $600 or more or if a nonresident alien is a trust beneficiary. The timely filing of the trust tax return is the legal responsibility of the successor trustee or trustees. A federal employer identification number must be obtained for the trust, and the number is used as the trust’s taxpayer identification number for the trust assets and on the tax return.
What if the trust was established by a husband and wife and there is a surviving spouse? If the surviving spouse has the right to all of the trust income and principal without limitation, is the sole successor trustee of the trust, and has the right to amend or revoke or terminate the trust, the trust may avoid filing a separate income tax report, Form 1041. Again, in this situation all of the trust income and deductions may be reported on the surviving spouse’s income tax return, Form 1040.
Another common income tax question is can the surviving spouse file a joint income tax return, Form 1040, for the year in which the death occurred even though his or her spouse did not live the entire tax year? The answer is yes, a joint income tax return can be filed for the year in which the death occurred. This is helpful from an income tax point of view since the personal exemption amount for the 2013 tax year is $3,900.
There are numerous other income tax issues when a trustor-beneficiary dies. For example, does a beneficiary of the trust have to report part or all of their inheritance on their income tax returns? The Jeffrey Burr law office has over 30 years of experience in administering trusts when a trustor dies, and the attorneys and support staff of the Trust Administration Department can answer this and other income tax questions a successor trustee and/or beneficiary may have.
Something a little different for our readers this week, but a great lesson to be had! Read the following article from msn.com. Make sure your family is really taken care of.
First of all, let me state an opinion; I do not find taxes inspiring. However, in searching the internet for inspiration on something to blog about for this week, I found an article that stated that today, October 3, is the anniversary of the federal income tax. More importantly, the federal income tax was signed into law by President Woodrow Wilson on October 3, 1913. So today is the centennial celebration of the income tax. I doubt there will be very many private celebrations for this event.
You may read more about it here: New York Times. It is actually a very interesting article.
Attorney Jason C. Walker
"*" indicates required fields