For Personal Reps and Executors
- Non-Probate Property
- Real and Tangible Personal Property Not Located in Massachusetts
- Asset Collection and Valuation
- Bill Paying
- Estate Tax Returns
- Income Tax Returns
- Gift Tax Returns
- Important Deadlines
- How We Can Help
In March 2012, Massachusetts adopted a new probate law called the Massachusetts Uniform Probate Code ("MUPC") for purposes of estate administration. The law was implemented in 2009 for purposes of guardianships and conservatorships. In July 2012, Massachusetts adopted a new trust law, called the Massachusetts Uniform Trust Code ("MUTC"). Both laws made substantial changes to the practice of estate and trust administration and drafting of estate and trust plans in Massachusetts.
Generally speaking, however, much of the new formal probate process remains similar to the old probate process in Massachusetts. The probate of an estate in Massachusetts begins with a petition to the Probate Court for the appropriate county, for informal or formal probate of will or of the intestate estate of the decedent and/or the appointment of the Personal Representative (formerly "Executor") (hereafter "PR"). Until this appointment, the PR generally has no authority to pay bills or deal with the decedent's property. Note that in the absence of a will, the same procedure and forms are necessary to appoint a PR with power to handle the decedent's property. Probate may also be "voluntary." If the decedent's probate estate (see below) is below $25,000 (not including the value of a car), a voluntary probate may be appropriate as long as other restrictions under Massachusetts law and practice do not apply to the situation. Voluntary probate is not available if the decedent had a probate ownership of real estate.
A PR often hires an attorney to prepare and file the petition for probate, the fiduciary bond and other legal documents. The probating of an estate generally 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 PR; and (3) to list the heirs-at-law who are entitled to notification of the probate proceedings. For an informal probate a copy of the petition and the death certificate must be mailed to the Department of Medical Assistance in Massachusetts ("DMA") seven (7) days prior to informal petitioning, or with a copy of the Notice once issued, usually at least fourteen (14) days prior to the return date in a formal proceeding. Often various assents need to be signed by persons interested in the estate.
After the formal petition is filed, the Probate Court will issue a formal Citation that needs to be published in a local newspaper, sent to all interested persons and to the DMA.
Some Courts in Massachusetts issue the Citation quickly, in other Courts the process takes more time. If charities are involved, the Citation must also be sent to the Attorney General ("AG"). The Publiation alerts any creditors and other interested persons that the will has been offered for probate or an intestate administration has been requested. If no one objects to the allowance of the will or to the appointment of the nominated PR, the attorney arranges for the judge to sign the fiduciary bond and an Order appointing the nominated PR. This formal process usually takes eight to twelve weeks from the date the petition has been filed with the Probate Court, although it can take longer. Letters of Authority (formerly Certificates of Appointment) are then procured from the Probate Court.
For informal probate, seven (7) days prior notice of filing sent to interested persons and the DMA is required before filing the petition with the Probate Court (although this notice period can be waived by interested persons and the DMA). After the PR is appointed, a notice to the newspaper of the PR's appointment must be published within 30 days.
If appointment of a PR is needed immediately, a petition for Special PR can be submitted to the Probate Court. 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 Special PR are more limited than when a permanent appointment has occurred.
PRs (other than Voluntary PRs) must account to the heirs at law (if an intestate estate), or to the devisees (beneficiaries) (if a testate estate), to the AG's Office if the AG is involved, and possibly to the Massachusetts (or other state) Probate Court for a decedent's probate property. For probate purposes, the estate includes 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) or according to the intestate laws of the state of last residence of the decedent.
Three months after the judge signs the fiduciary bond and the PR is appointed by the Court, Massachusetts requires the preparation of an inventory showing the assets in the Probate Estate held as of date of death. The inventory may (or may not) be filed at the Probate Court.
Massachusetts also requires an accounting each year of the administration of an estate showing all Probate Estate items received and disbursed during the administration, income 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) may be filed with the Court or sent to the beneficiaries. In a formal probate, notice must be given to all interested parties prior to asking that the accounts be allowed (approved) by the Court. Generally, if the account(s) are allowed by the Court, and a complete settlement has been filed and approved, the PR's liability for the estate closes. For an informal closing, the inventory and account(s) must be given to all interested parties, a closing statement must be filed, and one year from filing the statement the probate is generally complete. Closing documents filed at Court involve additional fees and cannot occur prior to one year from date of death because in Massachusetts the decedent's creditors have one year from date of death to make claims against the decedent's estate.
Non-probate property includes any interest a decedent may have in property passing other than by the will of the decedent or the intestate laws of the applicable state. Thus, any property held in a trust or in joint name (that is not just a convenience account) is non-probate. Property passing by beneficiary designations to anyone other than the estate of the decedent, such as TOD accounts, POD accounts, life insurance, annuities, pension and retirement accounts, also are non-probate property as long as they do not name the decedent or the decedent's estate as beneficiary. All non-probate property must be included on the estate tax return but is not included in the probate inventory or probate accounting. Non-probate property is not governed by the decedent's will, usually, and passes to beneficiaries according to other documentation.
If a decedent dies with any real or tangible personal property not located in Massachusetts (for example, located in another state or a foreign country), that property is not included on the inventory or accounting prepared in a Massachusetts probate unless the asset is brought into Massachusetts or sold during the administration of the estate and the proceeds are dealt with by the Massachusetts PR. Often if such property is in the name of the decedent alone (thus constituting Probate Property), ancillary administration must be brought in the jurisdiction in which the property is located. Original probate must first be obtained in Massachusetts if the decedent was domiciled in Massachusetts at his or her death even if no probate property exists in Massachusetts. This is because Massachusetts has jurisdiction over the decedent and the decedent's will usually can only be probated in the jurisdiction of domicile. Once the will is probated, the appointed PR often can request ability to deal with the foreign property through the probate court in the appropriate other jurisdiction. Of course, the PR must then follow the laws of the foreign jurisdiction and comply with the terms of the decedent's will. Ancillary probate can also occur if a decedent owned real or tangible personal probate property in another state and had no will.
PRs 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. If an estate tax may be payable, the PR can use an Alternate Date value only if that value is, in the aggregate, less than date of death value AND less estate tax is owed. The Alternate Date is 6 months from date of death if the asset has not been sold or transferred in the interim, or the value on the date of sale or transfer. The PR 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. At a minimum estate administration usually is at least one year from date of death because of creditor's rights.
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 PR must procure from the IRS an Employer Identification Number (EIN) for the estate if a bank or other account in the estate name is opened and if any income is earned by 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 accordingly. 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 may be includible on the 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 real property (real estate) is owned by the decedent in any form, it should be appraised with a value as of date of death. The town's assessed value is not considered by the IRS to be the correct fair market value of real estate. Generally, if the real estate 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 PR or estate attorney has determined that the property is not liable for any contribution toward estate taxes or administration expenses. If the property is registered land, more paperwork and different procedures may be necessary than recorded land. 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. Sometimes ownership should not be formally transferred until the creditor period has expired (in Massachusetts, this is one year from date of death).
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 by each beneficiary from each insurance company for all life insurance owned by the decedent or payable to the decedent's estate or trust. This form should be given to the PR. It 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 sharing plans, 401(k) plans, annuities 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.
PRs may pay bills such as:
- enforceable debts of the decedent incurred before death, but not yet paid. Debts may include utility expenses, outstanding real estate taxes, outstanding credit card bills, medical expenses to the extent not covered by insurance, and unpaid personal income taxes, among other items. Care must be taken to review whether a debt is enforceable or not and if not, it should not be paid
- 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.
But PRs must be careful not to pay if the probate estate would become insolvent. Delaying payment is appropriate until a complete analysis can be made of estate administration issues.
PRs must have estate tax returns prepared if the estate assets (probate and non-probate) reach a certain threshold. Under current law, the threshold for filing a Massachusetts estate tax return is total assets allocated to a decedent exceeding $1 million (unless there are prior taxable gifts). For a federal estate tax return, the threshold in 2018 is $10 million indexed for inflation, estimated to be approximately $11.18 million (again, unless there are prior taxable gifts). 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. Even if a married decedent does not have a $10 million (indexed) estate, filing a federal estate tax return may be appropriate to preserve the excess amount for the surviving spouse (often referred to as "portability" or deceased spouse's unused exemption "DSUE"). The lawyers and staff at Clements Pajak LLC have the ability and expertise to analyze the issues for federal purposes, Massachusetts and Maine State estate tax returns. We work with other attorneys for property in other states to prepare any necessary state 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 aggregate 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 estate taxes are less, a PR can elect alternate valuation for the assets. For estate tax purposes, the estate includes both Probate and Non-Probate property, wherever located in the world for US citizens. Thus, the Probate Estate and the Estate for estate tax purposes are not necessarily referring to exactly 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 PR and the income tax accountant ways to minimize overall taxes, such as using disclaimers; taking the deductions on the income tax return instead of the estate tax return, if appropriate; using a fiscal year rather than a calendar year for income tax purposes; combining a revocable trust and estate for income tax purposes using a 645 election if appropriate, etc. This is often referred to as post-mortem planning.
Once the returns are filed, the PR waits for the taxing authorities to review the returns and issue closing letters. Closing letters are the taxing authorities= agreement (except for any fraud) that any tax due has been paid. The authorities have up to three years from the date the return is filed to audit or 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, a PR may decide to hold back some assets in case an audit occurs. If any fraud is involved, the taxing authorities can reopen an estate at any time.
PRs must carefully review the tax clauses in an estate plan to determine who should pay or contribute toward payment of the estate tax. If no Probate Property exists but a Trust is part of the estate plan, often the Trustee(s) perform many of the PR's duties. Tax clauses in Wills and Trusts must be reviewed.
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, a PR must have fiduciary income tax returns (Federal Form 1041 and Massachusetts Form 2) prepared for the estate 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.
A PR is also required to have the decedent's final income tax return (Federal Form 1040 and Massachusetts Form 1) prepared. If the decedent did not file income tax returns during the decedent's life, the PR is obligated to file them if they should have been filed but were not. If the family has an ongoing relationship with a tax accountant or CPA, 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.
We can evaluate the gift tax issues for our clients. If the decedent gave gifts over the annual exclusion amount (an amount that has changed over the years and is currently $15,000 in 2018) to any person (except a U.S. citizen spouse) in any year and did not file a gift tax return, the PR is obligated to have a gift tax return prepared and filed. Generally gifts (other than gifts of future interests) to a non U.S. citizen spouse in 2018 up to $152,000 are gift-tax free. Persons who are not married, whether same-sex, opposite-sex, LGBTQ, or other, cannot give property to each other over the annual exclusion amount ($15,000 in 2018) without incurring federal gift-tax reporting consequences.
We charge our attorney and paralegal fees on an hourly basis, billing approximately monthly.
A PR is entitled to a reasonable fee based on the work the PR performs. Any fee paid to a PR is income to that PR and must be included in the PR's income tax return. PR fees can be deducted on the estate tax return, thus potentially lowering the estate tax due, if applicable or appropriate. Trustees are entitled to reasonable fees as well, and payments to Trustees of fees must be reported on a Trustee's income tax returns.
If specific pecuniary devises (cash gifts) are in the will, (and enough probate property exists to satisfy the gifts, debt, taxes, and expenses of the estate), arrangements must be made to pay them from Probate Estate assets (unless the will specifies that they are payable from a trust). In Massachusetts specific devises (cash payments) under a will or trust must be made within one year from date of death or interest may begin to accrue and be payable from estate assets.
The rest of the Probate Estate must pass in accordance with the will, often to individuals, charities, or to a trust. The PR 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 and perfect their claims against the estate up to one year from date of death. However, if the will provides that the property be placed in trust, and the trust allows for or requires the payment of these items, the estate may possibly distribute out to the trust within the first year. Analysis of these issues is important; distribution from the trust would then normally be delayed at least until after the first year has closed. Final 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, or foreign jurisdiction) have issued estate tax closing letters, accepting the estate tax returns, or do not audit final income tax returns. Depending on the situation, in the United States, this can often be anywhere from one to three years after the estate tax returns and applicable income tax returns have been filed.
Trust distributions are made according to the terms of the Trust. If the Trust could pay estate taxes or could be reached by a decedent's creditors, Trust distributions may also be delayed until after one-year from date of death.
Some of the more important dates, which the PR and estate beneficiaries should keep in mind during the administration of the estate in Massachusetts, are:
- Immediately After Death
- Determine whether decedent left instructions with respect to organ donation, funeral, burial, cremation, etc.
- Within Thirty Days of Death
- Determine whether to petition for Voluntary, formal or informal probate and/or request supervised administration.
- Consider possible disclaimers if not already discussed.
- If informal probate, 7 days prior notice must be given to interested persons who have not assented or waived notice prior to filing informal probate, and to the DMA.
- If informal probate, publish notice within 30 days of PR's appointment.
- If Trust, give notice to beneficiaries of Trustee's name and address unless Trust provides otherwise.
- Procure the appropriate EIN's (estate, trust, etc.).
- Original will (if any) must be delivered to named Executor or PR, or delivered to appropriate Probate Court.
- Three Months from Date of Death
- Estimated Massachusetts estate income taxes should be determined and paid.
- Check the laws in each state in which the decedent has assets for when estate tax returns or other inheritance returns must be filed.
- Three Months after Fiduciary Appointment
- The Probate Estate Inventory should be prepared and sent to interested parties or filed with the Court (although practice is often to wait until the estate tax return, if any, has been prepared and filed).
- 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.
- Consider whether estate is solvent or insolvent.
- Six Months after the Decedent's Date of Death
- Estate assets may be valued for Federal and State 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 PR or Trustee(s) must determine if the assets should be valued on the alternate valuation date as well as the date of death.
- 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, but the tax due should be paid on time, or penalties and interest will likely be assessed and payable. If extension is needed, appropriate forms must be filed.
- Nine months is also the date by which qualified disclaimers (refusal of inheritance), 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.
- April 15th of the Year Following the Decedent's Death
- A decedent's final income tax returns (Form 1040, and appropriate forms) are due on this date, together with payment of any tax.
- Any gift tax returns that were due from the decedent should be filed, unless they were filed sooner with the estate tax return.
- Within One Year of the Decedent's Death
- Specific pecuniary devises (aka legacies or bequests) (cash gifts) under the will or trust are often paid close to one year from the date of death. Interest begins to accrue on the gifts after the first anniversary of the decedent's death.
- Notify beneficiaries of tax cost basis of inherited property if applicable.
- 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 any month before the date of death (i.e., if a decedent died on June 14, 2017, the fiscal income tax year can end on the last day of any month up to May 31, 2018). 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.
- If a release of lien is received on probate real estate, record it and the death certificate at appropriate Registry of Deeds. An Affidavit of No Tax, as well as an Affidavit of No Divorce if Registered Land, may be appropriate.
- Within One Year of Fiduciary Appointment
- Petition Court for license to sell real estate if appropriate.
- Three Years from Date of Decedent's Death
- Under the MUPC, no one can "probate" a will after 3 years from the Decedent's death except in unusual circumstances, although the will can be used as evidence of ownership. Please contact us if you have any questions.
- Three Years from Date of Filing Estate Tax Return or Final Fiduciary Income Tax Returns
- Close estate by filing (a) small estate closing statement; (b) closing statement; or (c) petition for complete settlement, if not already prepared. (Voluntary need not file.)
- Do final distribution of estate assets after payment of all court fees, accountant fees, legal fees, etc. if not already paid.
The lawyers and our staff at Clements Pajak Law Offices have the experience to assist you in all phases of the probate and administration of an estate, preparation of estate tax returns, and trust funding and administration. We have knowledge and experience to deal with estate, gift, generation-skipping and related income tax issues. We are licensed to practice in all Massachusetts courts, Maine, the United States Tax Court and the United States Supreme Court. We have support staff to help 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, Trustee or other interested party smoother and to ease the administrative burdens of estate and trust administration.
At Clements Pajak Law Offices, if an authorized fiduciary wishes, we can personally administer the estate or trust bank accounts by bringing all of the cash assets into a bank, set up estate or trust account(s), and record in that account all items we have received. We can pay the appropriate bills from the account. This enables us to provide you with a list of all items that we have paid and received, and usually streamlines the preparation of probate or trust accounts. 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 have experience in the preparation and filing of gift tax returns and estate tax returns. 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 PR and/or Trustee names of income tax accountants from which to choose the income tax accountant to prepare the necessary income tax returns for the estate (and any trusts involved).
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 can discuss with the income tax preparer the most appropriate timing for fees to minimize estate income taxes and for final distributions keeping in mind possible excess deductions distributions.
Finally, of course, we can prepare the necessary probate papers - voluntary, formal or informal, 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 a PR or Trustee.
© Mary Clements Pajak
Clements Pajak LLC
29 Crafts Street, Suite 420
Newton, MA 02458
This document is for informational purposes only, may not reflect the most current legal developments, and may be considered advertising for legal services under the laws and rules of professional conduct of the jurisdictions in which we practice. It is not offered as legal or any other advice on any particular matter, and is not intended to create and does not constitute an attorney-client relationship between you and Clements Pajak LLC. You should not act or refrain from acting on the basis of this document without seeking the appropriate legal or professional advice on the particular facts and circumstances at issue.
IRS Circular 230 Notice:To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding U.S. tax penalties.