Page 62 - Successor Trustee Handbook

Even though all assets may not be completely identified and valued immediately, an
estimate of taxes due should be made no later than seven months after the date of
death, since the tax payment will be due on the date nine months after the date of
death. You will need several months to determine what funds can be used to pay
the taxes, whether current liquid assets of the Trust and/or assets of the probate
estate of the Trustor (if any) will be sufficient, or if you will need to obtain a loan
such as from the Trustor’s Irrevocable Life Insurance Trust (if any), the beneficiaries
themselves, or a third party lender, or you will need to sell or liquidate Trust assets.
Obviously, these decisions will require the input of your accountant (for the tax
consequences), your attorney (to determine how this will affect ultimate distribution
of the Trust, and to document everything legally), and your financial advisor (who
will need to assist you in the decision of where to take the cash from and/or which
assets to sell). IF YOU TAKE OVER AS TRUSTEE MORE THAN SIX MONTHS AFTER
THE DATE OF DEATH OF THE TRUSTOR, YOU NEED TO CONSULT WITH YOUR
ATTORNEY, ACCOUNTANT AND FINANCIAL ADVISOR AS SOON AS POSSIBLE
REGARDING THESE ISSUES! IF YOU ARE DEALING WITH THE DEATH OF A FIRST
SPOUSE OF A MARRIED COUPLE, YOU WILL NEED TO ALSO DISCUSS WITH THESE
ADVISORS THE ISSUE OF A POSSIBLE “DISCLAIMER” BY THE SURVIVING SPOUSE,
WHICH MUST OCCUR IN WRITING WITHIN NINE MONTHS OF THE DATE OF THE FIRST
SPOUSE TO DIE AND MAY BE ADVISABLE TO REDUCE ESTATE TAXES IN THE FUTURE
UPON THE DEATH OF THE SURVIVING SPOUSE.

Prepare and file the estate tax return in a timely manner. Although the estate
tax is due within nine months of the date of death of the Trustor, you may
extend the time for filing the return for an additional six months, if you file a
timely extension request. (However, this does not extend the time to make the
estimated tax payment discussed above.) Keep in mind that an estate tax
return may be required even though there may be no estate taxes due. For
example, in most cases no federal estate taxes are due on the death of the
first spouse. Also, there may be allowable expense deductions that will
reduce the estate taxes to zero. However, if the “gross estate” exceeds the
estate tax exemption or exclusion amount that applied at the date of death, a
return is technically required. It may be subject to increase or decrease in the
years to follow. (Currently the law is in a state of flux, so you will need to have
your attorney or accountant verify the applicable exemption amount. At the
first spouse’s death in a married couple, the gross estate is comprised of that
spouse’s half of the community property, plus his or her separate property (the
attorney may need to help you with the determination of what is community
and separate property, by receiving asset titles as well as consulting any pre-
marital or post-marital property agreements that the married couple may have
executed). On the death of the surviving spouse of a married couple, the
gross estate is comprised of the surviving spouse’s half of the community
property (typically, what is held in the “A” or “Survivor’s” Trust and/or his or her
individual Living Trust, or in his or her own name, plus the assets, if any, of the
“C” or “Marital” Trust).

59