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Checklist for Working With a Decedent’s Estate

There is an extraordinary amount of work outside of estate planning that arises when a tax client passes, mainly dealing with the decedent. This article hopes to serve as a basic checklist for accounting professionals to work with the decedent.

The trusted advisor usually gets called by the surviving spouse or other family, but it may also be incumbent upon the advisor to remind, teach, the family and others of the work that arises when someone passes. The estate of even middle-management executives, ordinary people that are not considered wealthy, can involve considerable effort…. and expense.

Some of the below steps are very interrelated and there are myriad initial considerations, but there are also tasks that may be more distant.

1. General Administration and Legal

At the earliest possible stage, the advisor or executor may want to sketch out a timetable of foreseen steps. If the situation is not so common for you, consider locating sources of help including probate court clerks or even the family attorney. Also, consider what education and help the executor may need, giving consideration to costs.

Resolve through the client’s attorney whether probate is necessary. Some states may have expedited processes for smaller estates. As the advisor, you will familiarize yourself with the rules in the local jurisdiction of when probate is necessary and the assets subject to probate.   

The taxpayer’s documents may be such that probate won’t be necessary even when the estate is large. Probate wouldn’t ordinarily encompass certain types of asset such as IRAs and joint tenancies.

Resolve generally the family members or others (previous spouse, current significant other) who may have a stake in the estate or who may have necessary information. Locate and resolve particulars as to the parties that need notification. This can range from beneficiaries to basic service providers, such as utilities for residence and rentals. 

Discover who needs to be notified of the decedent’s passing. This may include informing charities as to testamentary transfers. Identify prior transfers to charity that were partial transfers, such as charitable remainder trusts. A charitable remainder trust with a retained lifetime income interest will need to be included in the estate tax return albeit with an offsetting estate tax charitable deduction.

Locate the relevant documents, which can include:

  • The will
  • correspondence and memos relating to the will
  • letters explaining  the client’s testamentary wishes
  • deeds
  • trusts
  • bank and brokerage statements
  • stock certificates
  • appraisals
  • safety deposit box
  • relevant corporate minutes of closely-held companies
  • partnership agreements
  • copies of prior tax filings
  • federal, state and local income
  • gift tax returns  

Work with legal counsel to help resolve any issues of basic ownership, including whether the property is separate or community. You should also coordinate generally, the work of identifying assets and liabilities and keep an eye out for any clues that may indicate assets, or liabilities.  

Also, did the decedent or the couple ever prepare financial statements, whether for family, lender or business purposes?  Keep in mind such assets as car titles, valuable club memberships, works of art, jewelry and intangibles such as patents, copyrights and business entity goodwill.

Bankers may need to be notified as well, so consider whether it is necessary to establish a separate estate bank account. Ultimately, consider whether the executor needs the help of the advisor in so far as notifying those with claims. Some states have required procedures or notifying those with claims against the estate.

Do new service providers need to be hired to do the tasks that were being done by the decedent? Identify the relevant state law statute which governs any estate administration. The advisor’s concerns will often focus on resolving principal and income issues. Such laws may materially affect the returns and impact beneficiaries in different ways.

Resolve whether a court accounting will be necessary for the estate or any trust. Determine any responsibilities that you may have with respect to filings with the probate court.

Determine if there is a living trust and whether the trust has actually been funded as one would expect. Revocable, living trusts may be in place whose purpose, if properly funded, is primarily the administrative convenience of avoiding the expense and confidentiality issues associated with probate.  

Resolve whether such trusts, that usually become irrevocable upon death, are in place and funded according to the estate plan. Consider whether to file an election to treat a qualified revocable trust and the estate as one taxable entity (Sec. 645, IRS Form 8855).

Resolve life insurance issues, including whether ownership of life insurance vested in the decedent. It may help to identify insurance agents associated with the family or the family business.

Resolve retirement plan beneficiary designation issues, including (usually) any payout period issues of the beneficiaries. The current and even former employers may need to be notified with queries made as to potential benefits.

Review the prospect of disclaimers and work to resolve whether the estate plan contemplated the prospect of disclaimers for reasons of flexibility or tax planning advantage.

Social Security Administration will usually need to be notified. Consider other notification needs, such as Medicare, pension administrators, the Department of Veterans Affairs, the post office, partners, trustees, service providers who may need to provide a final bill.

Finally, consider realty issues, including whether the decedent’s death may involve leasing and property tax issues and real estate management concerns.

2. Tax Matters

Locate the income and gift tax returns of the decedent and estate tax returns for any predeceasing spouse. Old returns may yield helpful clues, including asset identification, elections by the predeceasing spouse, etc.

Determine if there are multiple taxing jurisdictions, which can arise with recent moves. Keep in mind the mundane administrative details, such as an ID number for the estate and any trusts (See Form SS-4).

Consider whether there are unique issues affecting the decedent’s final income tax return. Possible special rules here include the decedent’s final medical expenses as an income tax or estate tax deduction (see Sec. 213(c’)) and unrecovered investment in an annuity as an itemized deduction on the final return. This deduction was not affected by the general repeal of miscellaneous itemized deductions with the 2017 Tax Cuts and Jobs Act.

Timely file, getting extensions when necessary, any 1040’s, state income tax returns, fiduciary income tax returns (Form 1041 and state), notification of fiduciary relationship (Form 56), estate tax Form 706, spousal portability elections, any state tax inheritance forms, and any local obligations such as city business license tax filings.  

Consider filing an estate tax return even if one may not be required. Generally work to establish date of death values for assets. Consistency of income tax basis and estate tax values is generally required (Sec. 1014(f); Form 8971; see Notice 2020-23 for possible 2020 deadline relief here and sundry other estate and fiduciary related filing deadline relief). It is often important to resolve income tax statute of limitation issues and any IRS, state or local examination issues.

3. Later Phases of the Professional’s Engagement

There may be advisor work related to a probate court’s formal closing of the estate. As progress is made toward closing the decedent’s affairs, consider filing for a prompt assessment to reduce the period of possible assessment of income tax as to the decedent and the estate (Sec. 6501(d); Form 4810; consider also Form 5495 re request for discharge of personal liability).

Communication is particularly important due to the complexity of the topic and number of advisors involved. Closing calls to affected parties and advisors are usually in order. Such calls early on in the process can also avoid down-the-road problems.

In Conclusion

Transitioning a decedent’s affairs to new owners, individuals and entities, is both complex and filled with satisfying accomplishments along with an abundance of tax planning and related opportunities.