We at Clements Pajak Law Offices have the experience to assist you in all phases of the probate, tax issue understanding, administration of an estate and preparation of estate tax returns. The lawyers are licensed to practice in all Massachusetts Courts, and we have attorneys who are licensed to practice in Maine, and the U.S Tax Court. Our support staff helps us (and you) in handling day to day administrative duties. We have the ability and connections to make the life of an Executor, Administrator, Personal Representative or other interested party smoother and to ease the administrative burdens of estate administration.
At Clements Pajak Law Offices, if an authorized fiduciary wishes, we can personally administer the estate bank account by bringing all of the Probate Estate cash assets into a bank, set up an estate account, and record in that estate account all items we have received. We can pay the appropriate bills from the estate account. This enables us to provide you with a list of all items that we have paid and received. We provide this information to you on a mutually agreeable schedule to keep you up to date on all matters in a timely manner.
We can arrange for appraisals of all assets, distributions of assets, funding and distributions of trusts (if any) and any other matters dealing with the estate. We can give the Executor names of accountants from which to choose the accountant to prepare the necessary income tax returns for the estate (and any trusts involved). We also have experience in the preparation and filing of gift tax returns and estate tax returns.
We actively engage in post-mortem planning to minimize taxes for estates. We can prepare disclaimers and trust reformations. If fees are taken as part of the estate tax return, they may be paid at any time; if fees are not deducted on the estate tax return, we discuss with the income tax preparer the most appropriate timing of fees to minimize estate income taxes.
Finally, of course, we can prepare the necessary probate papers and shepherd the estate through the Court system to completion.
At Clements Pajak LLC, our goal is to provide professional, prompt service and attention to all our clients. Whether your needs are complex or simple, we have the experience and can provide the attention to detail necessary to support your responsibilities as an Executor, Administrator or Personal Representative.
The probate of an estate in Massachusetts begins with a petition to the Probate Court for the appropriate county, asking for the allowance of the decedent's will and the appointment of the Executor. Until this appointment, the Executor generally has no authority to pay bills or deal with the decedent's property. In the absence of a will, a similar procedure is necessary to appoint an administrator with power to handle the decedent's property. The terms "Executor" and "Administrator" are Massachusetts terms for the personal representative who handles a decedent's assets after death.
An Executor usually hires a lawyer to prepare and file the petition for probate, the fiduciary bond, and other legal documents. The probating of an estate performs three functions: (1) to confirm that the filed will is the valid last will of the decedent (this is the "allowance" or "proving" of the will); (2) to appoint the nominated Executor; and (3) to list the heirs-at-law who are entitled to notification of the probate proceedings. A copy of the petition and the death certificate must be mailed to the Department of Medical Assistance in Massachusetts. A form provided by the probate court entitled Information and Rights of Interested Parties must be mailed to all interested parties.
About four to six weeks after the petition is filed, the Probate Court will issue a formal Notice that needs to be published in a local newspaper and sent to all heirs at law, legatees and devisees under the will. If charities are involved, a notice must also be sent to the Attorney General. This Notice alerts any creditors and other interested persons that the will has been offered for probate. If no one objects to the allowance of the will or to the appointment of the nominated Executor or Administrator, the attorney arranges for the allowance of the will, the judge to sign the fiduciary bond, and the appointment of the nominated Executor or Administrator. This process usually takes eight to twelve weeks from the date the petition has been filed with the Probate Court, although it can take longer. Certificates of appointment are then procured.
If appointment of an Executor is needed sooner than eight to twelve weeks, the Probate Court can be asked for a temporary appointment pending the permanent order. Generally, this is done if there is an immediate need to preserve and manage the assets of the estate, such as running a business. The proceeding requires a personal appearance at the Probate Court, involves additional fees, and the powers of a temporary are more limited than a permanent appointment.
Executors must account to the Massachusetts (or other state) Probate Court for a decedent's probate property. For probate purposes, the "estate" includes only items owned solely in the name of the decedent, items payable to the decedent, items payable to the decedent's estate, or items held for convenience only in joint accounts. These items pass according to the will of the decedent (the "Probate Estate").
Three months after the judge signs the fiduciary bond and the Executor or Administrator is appointed by the Court, Massachusetts requires the filing of an inventory showing the Probate Estate held at date of death. There is no sanction for not filing the inventory within this period, and the Executor may wish to wait until the estate tax figures have been established before completing and filing the inventory in final form. The Executor, however, should strive to have identified and collected all Probate Estate assets within this three-month period.
Massachusetts also requires an accounting at the end of the administration of an estate showing all Probate Estate items received and disbursed during the administration, interest earned and fees and expenses paid. Accounts are either prepared on an annual basis, or one account (a "First and Final Account") is prepared at the end of the administration. The account(s) are filed with the Court and generally an attorney is required to request the allowance of the account(s). Notice must be given to all interested parties. Generally, after the account(s) are allowed by the Court, the Executor's liability for the estate closes.
Non-probate property includes any interest a decedent may have in property passing other than by the will of the decedent. Thus, any property held in a trust or in joint name (that is not just a convenience account) is non-probate. Any transfer on death accounts, life insurance, annuities, or pension and retirement plans that are not payable to the estate are also non-probate property. This property must be included on the estate tax return but is not included in the inventory or accounting filed with the Probate Court.
ASSET COLLECTION AND VALUATION
Executors must gather and compile a list of all of the Probate Estate and non-probate assets of a decedent, with values determined as of the date of death and six months thereafter (if an estate tax may be payable) or upon sale if such sale takes place between these dates. The Executor takes custody of and manages the Probate Estate assets during the period of administration. The period of administration can be lengthy, depending on the assets held in the estate and the disposition of those assets.
Existing bank accounts held in the sole name of the decedent or in joint name for convenience must be closed and the funds should be deposited into the estate account. The Executor must procure from the IRS an Employer Identification Number (EIN) for the estate. The value of the accounts and any interest accrued and payable at date of death must be determined.
All stocks and bonds held in the sole name of the decedent must be transferred into the name of the estate. The valuation of publicly traded stock is the mean between the highest and lowest selling price on the date of death (if that date occurs on a trading date) or a weighted average if the date of death does not occur on a trading date. Accrued interest and dividends (as well as the value of the securities) are usually includible on the estate tax return and probate inventory. Closely held stock and partnership interests, if any, must be valued and transferred in accordance with the terms of any documents governing their transfer.
If there is real property (real estate), it should be appraised. If it is specifically devised (given to a person or entity under the will), the property should be transferred to the specific devisee as soon as the Executor or estate attorney has determined that the property is not liable for any contribution toward estate taxes or administration expenses. Insurance on the real estate must be reviewed and perhaps updated to reflect the current ownership. Arrangements for securing and safeguarding the property must be made - possibly changing the locks or adding a security system, depending on the ownership and disposition of the property.
The tangible personal property (property that can be touched and moved such as jewelry, furniture, automobiles, etc.) should be appraised and, if necessary, arrangements should be made for securing and safeguarding the property, including proper storage and insurance, until those assets are either sold or distributed to the beneficiaries.
If the decedent owned life insurance policies, the claims should be processed by the beneficiary of the insurance. If the life insurance proceeds are payable to the decedent's estate, the proceeds should be deposited into the estate account. A Form 712 must be requested from each insurance company for all life insurance owned by the decedent or payable to the decedent's estate or trust. This form provides the value to be used on an estate tax return and becomes an attachment to the return.
If the decedent had any retirement, pension or profit plans, 401(k) plans, and/or individual retirement accounts, the benefits to which the decedent and his/her beneficiaries may be entitled should be ascertained, and the most beneficial payout should be determined. The value to include on any estate tax return must be determined as well.
Executors, once appointed, must pay bills such as:
legally enforceable debts of the decedent incurred before death, but not yet paid, such as utility expenses, outstanding real estate taxes, outstanding credit card bills, medical expenses to the extent not covered by insurance, and unpaid personal income taxes;
funeral expenses, including the funeral home bill, costs of any reception after the funeral, sympathy cards, stamps for sympathy cards, long distance telephone calls, and the like (either directly or through reimbursement of family members);
expenses of administration, including legal fees, accountant's fees, charges for death certificates, charges for certificates of court appointment, court filing fees, appraisal costs, and the like, incurred while the estate is ongoing.
Executors must have estate tax returns prepared if the estate assets (probate and non-probate) reach a certain threshold. Currently the threshold for a Massachusetts estate tax return is less than that for a Federal estate tax return, but if present law remains in effect without changes, the threshold for Massachusetts and Federal purposes will be the same starting in 2011. Federal and state estate tax returns (Forms 706, M-706, etc.) are due nine months after date of death. The returns can be put on extension for six more months, but any taxes are due and payable at nine months. At Clements Pajak LLC, we have the ability and expertise to prepare the estate tax returns.
The returns are a snapshot of all the assets held by a decedent or in which a decedent had any interest on the date s/he died, with values determined on the date of death. If the asset values are less on the alternate valuation date (six months after date of death or the date of sale or distribution, if sold or distributed between the date of death and the six month date) and the Federal taxes are less, an Executor can elect alternate valuation for the assets. For estate tax purposes, the "estate" includes both Probate and Non-Probate property. Thus, the "Probate Estate" and the "Estate" for estate tax purposes are not necessarily referring to the same assets. This can often cause confusion during the administration of an estate. As we proceed through the administration, we will be happy to answer any questions you may have.
The estate tax returns reflect deductions allowable by the taxing entities to reduce the "taxable estate". Deductions are allowed for funeral expenses, debts, expenses of administration, items passing to a surviving spouse (if any) or to charities (if any). We discuss with the Executor and the tax accountant ways to minimize taxes, such as using disclaimers, timing distributions, reviewing for specific terms and possible flexibility, etc. This is often referred to as "post-mortem planning".
Once the returns are filed, the Executor waits for the taxing authorities to review the returns and issue "closing letters". Closing letters are the taxing authorities' agreement that any tax due has been paid. The authorities have up to three years from the date the return is filed to review the return, but typically they proceed with the review sooner - often within one year of receiving the return. Generally, until the closing letters are received, the estate remains open.
The estate is a taxable entity for income tax purposes if assets held by it generate income during the administration of the estate. In such situations, an Executor must have fiduciary income tax returns (Federal Form 1041 and Massachusetts Form 2) prepared for estates annually. In Massachusetts, estimated income taxes of the estate must be paid currently unless all income is passed out for each year. The Federal government allows a two-year window in which estimated income taxes are not required to be paid by the estate.
An executor is also required to have the decedent's final income tax return (Federal Form 1040 and Massachusetts Form 1) prepared. If the family has an ongoing relationship with a tax accountant, that accountant often prepares the decedent's final income tax return. If experienced in preparing fiduciary returns, that tax accountant will often prepare the income tax returns for the estate as well. We work with the family's tax accountants to convey estate information for purposes of their preparation of all appropriate income tax returns and can suggest tax accountants if the family has none or if the family's accountant is not familiar with fiduciary income tax issues.
If the decedent gave gifts over the annual exclusion amount (an amount that has changed over the years and is currently $12,000 in 2008) to any person (except, perhaps a spouse) in any year and did not file a gift tax return, the Executor is obligated to have a gift tax return prepared and filed. Non U.S. citizen spouses can receive more than $12,000 per year gift tax free, but substantial transfers to them are not necessarily gift tax free. We can evaluate the gift tax issues for our clients. Same-sex couples (married or otherwise) cannot currently give property to each other over the annual exclusion amount without incurring gift-tax consequences.
We charge our lawyer and paralegal fees on an hourly basis.
An Executor is entitled to a fee based on the work the Executor performs. Any fee paid to an Executor is income to that Executor and must be included in the Executor's income tax return. Executor fees can be deducted on the estate tax return, thus potentially lowering the tax due, if applicable.
If there are specific pecuniary bequests (cash legacies) under the will, arrangements must be made to pay them from Probate Estate assets (unless the will specifies that they are payable from a trust). Cash payments under the will must be made within one year from date of death or interest will begin to accrue and be payable. Cash payments under a trust that terminates on the decedent's death must be paid within six months from date of death or interest will begin to accrue and be payable.
The rest of the Probate Estate must pass in accordance with the will - to individuals, charities or to a trust. The Executor must distribute that property, after paying administration expenses, taxes, debts, claims and funeral expenses. The Probate Estate cannot be fully distributed before one year from date of death because creditors may file claims against the estate up to one year, unless the will provides that the property be placed in trust and the trust allows for the payment of these items. Distribution to the beneficiaries of the residue of the estate typically occurs after both the Internal Revenue Service and the Commonwealth of Massachusetts (or other state) have issued estate tax closing letters accepting the estate tax returns. Depending on the situation, this can be anywhere from one to three years after the estate tax returns have been filed.
Some of the more important dates, which the Executor and estate beneficiaries should keep in mind during the administration of the estate, are:
A. Three Months from Date of Death
Estimated Massachusetts estate income taxes should be determined and paid.
B. Three Months after Judge Signs Fiduciary Bond
The Probate Estate Inventory should be filed with the Probate Court (but see above).
All assets should be gathered, valued, and Probate Assets should be transferred into the name of the estate either by closing out bank accounts into the new estate account or by changing the names on securities into the name of the estate. The reality is this work may take longer than three months, takes much time and effort, and we can do some, most, or all of it - depending on our clients' wishes.
C. Six Months after the Decedent' s Date of Death
Estate assets may be valued for Federal and Massachusetts estate tax purposes on one of two dates: (a) the date of death, or (b) the alternate valuation date which is typically six months after date of death (unless assets are liquidated or transferred prior to that date). The Executor must determine if the assets should be valued on the alternate valuation date as well as the date of death.
Cash bequests under a trust that terminates on the decedent's date of death must be paid or interest will begin to accrue and be payable.
D. Nine Months after Decedent' s Date of Death
This is the due date for the filing of the U.S. Estate Tax Return (Form 706), the Massachusetts Estate Tax Return (Form M-706) and most other state inheritance or estate tax returns, and the due date for the payment of these taxes. Generally it is possible to obtain a six-month extension of time to file these returns for good cause, but the tax due should be paid on time, or penalties and interest will likely be assessed and payable.
Nine months is also the date by which disclaimers, if appropriate, must be signed and filed, or an action for reformation of a trust for Generation Skipping Transfer Tax purposes must be filed with the appropriate Court.
E. April 15th of the Year Following the Decedent' s Death
This is when the decedent's final income tax returns (Form 1040, and appropriate state forms) are due, together with payment of any tax.
It is also when any gift tax returns that are an obligation of the decedent should be filed, unless they were filed sooner with the estate tax return.
F. Within One Year of the Decedent' s Death
Specific pecuniary bequests (cash legacies) under the will are often paid within one year of the date of death. Interest begins to accrue on the legacies after the first anniversary of the decedent's death.
Creditors may file claims against the estate up to one year from the decedent's death.
An estate may claim a fiscal income tax year that ends on the last day of the month before the date of death (i.e., if a decedent died on June 10, 2008, the fiscal income tax year can end on the last day of any month up to May 31, 2009). Fiduciary income tax returns for estates are due four months and fifteen days from the last day of the fiscal year. Payment of any tax due must be made at that time as well.
Clements Pajak Law Offices provides Estate Planning services to the communities of Middlesex, Norfolk and Suffolk Counties as well as Boston Metro West including Acton, Arlington, Ashby, Ashland, Ayer, Bedford, Belmont, Billerica, Boston, Brookline, Boxborough, Burlington, Cambridge, Canton, Carlisle, Chelmsford, Concord, Dedham, Dover, Dracut, Dunstable, Duxbury, Everett, Framingham, Groton, Holliston, Hopkinton, Hudson, Lexington, Lincoln, Littleton, Lowell, Malden, Marlborough, Maynard, Marlboro, Medford, Melrose, Milton, Natick, Needham, Newton, North Reading, Pepperell, Reading, Sherborn, Shirley, Somerville, Stoneham, Stow, Sudbury, Tewksbury, Townsend, Tyngsboro, Wakefield, Waltham, Watertown, Wayland, Westford, Weston, Westwood, Wilmington, Winchester, Woburn and Wellesley Massachusetts.
© Mary Clements Pajak
Clements Pajak LLC
2020 Commonwealth Avenue
Newton, MA 02466
Tel: 617-795-2990
Fax: 617-795-5960
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