Estate Tax

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Trust Administration in Missouri…

Trust Administration in Missouri…


TRUST ADMINISTRATION IN MISSOURI:  9 STEPS

Avoiding probate is one of the best aspects of having a living trust.  Administering a trust after a person dies is much easier and cost effective than the probate process.  That does not mean there are not steps to complete for administering a trust, however.

Here are the 9 steps for administering a trust in Missouri:

  1.  Making an inventory of assets.   All assets held by the trust should be identified, including determining title and ownership of the trust assets.  If some assets are not owned by the trust, a separate probate estate might need to be opened.
  2. Valuing of assets.  The valuation of assets has important income tax, capital gains tax, property tax and estate tax implications.  Depending on the asset, a formal appraisal might be required.  Accounts are easy since statements will provide valuations.
  3. Allocating of assets.  The trust terms will dictate what assets are to be allocated to sub-trusts or to a surviving spouse or both.  Technical considerations must be made to determine where certain assets should be allocated.
  4. Asset retitling.  Each asset must be titled to the proper trust in order to maintain protection from estate taxes, creditor claims and Medicaid.  Our firm can assist in preparing titles and transferring assets quickly.
  5. Obtaining a taxpayer identification number.  Once a trust becomes irrevocable, a taxpayer identification number (a TIN) must be obtained from the IRS.  To do so, a Form SS-4 must be filed.  Caution must be taken to ensure that the trustee will be recognized by the IRS and will recognize and respond to inquiries from the trustee.
  6. Determination of need to file Form 706.  A married couple has generally no estate tax payable upon the first death because of the unlimited marital deduction.  A Form 706 is a federal estate tax return.  Filing this form will establish the value of assets.
  7. Filing of Form 706.  A federal estate tax return must be filed within 9 months of the date of death.  Since Missouri does not have an inheritance tax, there is no need to file a state estate tax return (and there is no such thing).  Our firm has experience in preparing these returns.
  8. Filing of Form 1041.  A Form 1041 is often required to report income taxes.  There are other filings as well, including Notice of Fiduciary Relationship and Request for Discharge of Personal Liability.
  9. Distribution of assets.  Eventually assets will need to be distributed from the trust and will be able to be distributed.  Specific distributions and residual distributions must be carried out.

Keep in mind that in addition to the above, a trustee must also, collect assets of the estate, pay bills of the decedent before their death, during the administration of the trust and bills directly attributable to the passing of the decedent (i.e. funeral bills, medical bills).  Any other directions in the trust must also be carried out.

Trustees ultimately must carry out the terms of the trust as provided in the document.  This can lead to a trustee exposed to liability, potential legal penalties and subjected to litigation.  Trust documents always allow a trustee to obtain legal counsel and a trustee should never attempt to administer a trust without the assistance of an attorney.

Estate taxes and inheritance taxes…

Clients are often understandably confused about the effect of so-called death taxes on their estate planning.  To start, the term “death taxes” usually refers to two separate taxes:  estate tax and inheritance tax.  These taxes are different, as explained below.

An estate tax is a tax imposed on the estate (not the beneficiary of the estate) by the federal government and some state governments.   The gross estate of a person who has died is all the property owned at death by the person, along with certain property transferred during that person’s life in which an interest was retained and property transferred in contemplation of death.   This would include all joint property, retirement benefits and life insurance proceeds.

Estate taxes are chargeable to the estate of the deceased after deductions and exemptions.

The federal government has an estate tax.  Currently, less than 20 states have an estate tax and Missouri is currently not one of them.

For 2013, the federal estate tax only kicks in if a person dies with an estate of higher than $5.25 million dollars, which is the exempt amount for an individual.   The rate is 40%.  As an example, if a single person died with an estate worth $6 million, they would have a taxable estate of $750,000 ($6 million less $5.25 million), leaving an estate tax bill of $300,000.

It should be noted that couples now have “portability” in their exemptions.  This means that when the first spouse passes away, their individual $5.25 million exemption is transferred to the surviving spouse and when the surviving spouse dies, their exemption is actually $10.5 million.

The problem with the estate tax is that it is subject to change.  As I often tell my clients, while it’s reassuring to know that the estate tax currently only affects multimillionaires, as recently as a few years ago, the federal estate tax kicked in at $675,000.  In 1981, the estate tax kicked in at $175,000.   We simply don’t know what the future holds in terms of estate tax rates and rules.  As everyone knows, our country is deeply mired in debt and at some point this debt will either come due or the federal government will institute higher taxes to pay down the debt.  Whether that would include lowering the exemptions for estate tax is anyone’s guess at the moment.

An inheritance tax differs from an estate tax in that an inheritance tax is imposed on the beneficiary rather than on the estate of the person who passed away.  Depending on the state, it is generally calculated based on who received the inheritance and how much they received.  Typically, immediate family members (children for example) are taxes less than less immediate family members (siblings, uncles, cousins for example).  Only seven states currently collect inheritance tax from beneficiaries and Missouri is again currently not one of those states.  Inheritance taxes are generally taxed at a much lower rate, as are state income taxes.