The loss of a loved one is a traumatic event and it can be among the most challenging of times to make important financial decisions. Proactive planning with an attorney and financial planner can significantly lessen the burden. Here are a few things to consider.
Be Prepared for the Immediate. Even if you have prepared, following a death, there are several steps that generally require immediate attention. These include (1) funeral arrangements, (2) guardianship of minors (3) liquidity needs for the surviving spouse or other family members, (4) ensuring that cash and tangible personal property like jewelry and valuables are safe and secure, (5) addressing the needs of an operating business, (6) locating and filing the original Will, and (7) obtaining death certificates.
Estate Administration is a Process. The estate administration process generally takes one to three years to complete and is supervised by attorneys. There are numerous steps in the estate administration process, including the following: (1) get the executor appointed by the Surrogate’s Court, (2) open an estate checking account, (3) gather assets, consolidate and retitle them in the name of the estate, (4) address claims and expenses, (5) obtain date of death values for all assets, including appraisals for hard to value assets, (6) prepare estate tax returns (federal and state), (7) prepare income tax returns (including decedent’s final life income tax return and the estate’s income tax return, (8) obtain a closing letter and appropriate tax waivers from the IRS and state tax authorities, (9) distribution of the estate and funding of trusts, including allocation of assets among various beneficiaries, and (10) prepare accounting (formal or informal) and obtain receipt and releases from the estate beneficiaries.
Your financial planner plays an important role in many of these steps, such as providing account statements, retitling accounts, updating basis information, communicating with the entire team of advisors, and of course providing investment advice for the estate assets.
Tax planning. There are various tax issues to consider during the estate administration process, including: (1) selecting a taxable year for the estate, (2) considering alternate valuation date for asset values, (3) making a QTIP election for a surviving spouse’s trust (or a QDOT election for a non-citizen surviving spouse), (4) making an election to treat a revocable trust as part of the estate, (5) making a portability election for the decedent’s unused federal estate tax exemption, (6) making generation-skipping tax allocations on the federal estate tax return, (7) determining which deductions to take on the estate tax return or on the estate’s income tax return, and (8) deciding whether to make annual distributions from the estate or related trusts for income tax planning purposes (as the trust’s income tax rates are often higher than the income tax rates of the trust beneficiaries).
When Conflict Arises. If there are conflicts in an estate, or any aspect of the estate will be contested, the financial advisor is often one of the first to learn of the situation, and importantly can consult with an attorney to objectively evaluate and resolve the issues.
