Page 61 - Successor Trustee Handbook

CHAPTER 16

ESTATE TAXES

Of all the areas of Trust administration following the death of a Trustor (or his
or her spouse), this is the one where you must definitely seek immediate
professional help! The liability exposure to you, if you don’t, may be hundreds
of thousands or even millions of dollars! Be sure to choose an attorney or
accountant who has experience in preparing numerous estate tax returns (IRS
Form 706) and handling estate tax audits. Many attorneys are good estate
planners and also can handle the Trust administration well, and many
accountants are excellent at preparing income tax returns and handling audits
of them, but only a few attorneys and accountants have substantial experience
in the area of estate taxes.

There are basically four key steps in handling estate taxes: (1) estimate
any estate taxes due and set aside funds for payment; (2) prepare and timely
file the Form 706, if required; (3) pay any taxes due in a timely manner; (4)
follow through after the return is filed, until you receive a “closing letter” from
the IRS.

Here’s a little more detail:

Estimate any estate taxes due and set funds aside for their payment. One of
the very first steps in administering the Trust following the death of a Trustor is
the identification of all Trust assets, as well as non-Trust assets in which the
Trustor had an interest, and obtaining date of death valuations for them (see
the Chapters, “Checklist of Immediate Actions Upon the Death of the First
Spouse” and “Checklist of Immediate Actions Upon Death of an Individual (or
the Surviving Spouse)”). A determination will need to be made not only of
whether a Federal estate tax is due, but also whether there will be any
separate state death or inheritance taxes due. Fewer estates and Trusts are
liable for federal estate taxes than was the case before, because the tax
exemption has been increasing; however, don’t assume that no tax will be
required, because the total assets of the Trustor, after being valued and
appraised, are often worth a lot more than you think! Florida no longer has
these types of taxes, however, if property is located in another state, or the
Trustor had his or her primary residence in another state, it is possible that
there may be additional state taxes due.

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