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Estate Taxes? “Rolling in the Deep”

Administering an estate or trust? Were taxes filed before the person died? How would you know? The IRS allows access to previously filed returns with authority. An unpaid income tax bill is common. Hopefully, there is a recorded lien to alert you. But some go unnoticed. This problem occurs at every income scale. As a recent example, review the Estate of Aretha Franklin.

Ms. Franklin died August 16, 2018 from pancreatic cancer. She was a prolific singer and songwriter. She was inducted into the Rock and Rock Hall of Fame. Her estate may be worth over $80 million (which might trigger “estate tax” problems). But she neglected to pay her income taxes for years.

The IRS filed an additional Proof of Claim for more than $1.5 million for tax years dating back as far as 2010 for 945 taxes and related penalties.


Irs Seeks To Recover Millions In Unpaid Taxes From The Estate Of Aretha Franklin
Kelly Erb – https://www.forbes.com/sites/kellyphillipserb/2018/12/28/irs-seeks-to-recover-millions-in-unpaid-taxes-from-the-estate-of-aretha-franklin/#5e5003715f9c

Ms. Franklin forgot or neglected to file. Now, it is the executor’s problem. The IRS is a creditor of the estate. Any unpaid tax will be a liability. It is the fiduciary’s job to negotiate or satisfy these claims.

Some people confuse “estate tax” with income tax in an estate. The federal “estate tax” might affect the estate if the combined assets of the decedent or trust are over $11.18 million (2018). See IRS’s reference to the Estate Tax. Aretha Franklin will have that problem, but the majority of Americans should never worry about it.

However, if the estate generates income above a certain amount, such as capital gains or dividends, the fiduciary will have to file an estate return for that income. See IRS’s reference to the Income Tax Return for Estates and Trusts. Of course, these are general considerations. The are exceptions to these rules. There are also pitfalls and penalties if you do not file on time. Do not be a link in the IRS’s “Chain of Fools,” as Ms. Franklin would belt. Retain an accountant to advise on any taxable event or liability before you close the estate or trust (even better: hire them immediately when you start acting as a fiduciary).

If you need advise on how to properly administer an estate or trust, please contact the Estate Attorneys of Grand Junction, Reams & Reams at 970-242-7847.

Family member has died. Do I need to file a probate proceeding? Consider a Small Estate Affidavit.

As the nominated personal representative or the successor of an estate, you have a lot of options to consider. Whatever you do consider, please also review the duties you have to the estate in general, including to the creditors and to the beneficiaries of the estate from the Colorado Bar Association’s article: So Now You Are A Personal Representative. This article gives enough information to get started; however, one thing it does not mention is whether you even need to open up an estate probate proceeding.

If the estate you are administering does not have real property in the decedent’s sole name (exclude properties in joint tenancy) and the estate has less than $64,000 in assets less liens and encumbrances, you may be able to avoid a formal probate proceeding altogether. On the Colorado Judicial Branch website, you may use a signed Affidavit for the Collection of Personal Property if it meets the following criteria:

  • No real property in the decedent’s sole name (Check the Assessor’s webpage and the Mesa County Clerk and Recorder to review the chain of title to the property and the vesting deed.) and the estate has less than $64,000 in assets less liens and encumbrances;
  • At least ten days have elapsed since the date of death; and
  • There is no appointment of a personal representative pending in this district or any other state.

If you meet the criteria above, you may be able to use the Affidavit in the following ways: (1) collect assets from a financial institution; (2) transfer or sell vehicles in the decedent’s name (the DMV will require the use of its own form); (3) authorize cremation or deal with funeral services;  (4) deal with creditors of the estate; or, but not limited to (5) distribute assets to heirs.

Anyone who uses this the Small Estate Affidavit is still held accountable for any action they make on behalf of the estate. If there is a Will, follow the Will’s division of property after creditors have been paid. If there is no Will, you will have to divide any assets after creditors are paid by intestate succession pursuant to the Colorado Revised Statutes. The statutes are somewhat complicated if there are no known next of kin.

There is one disadvantage to using a small estate affidavit as opposed to a probate proceeding, even if you do not need to file: They have different creditor periods. With any unknown or known creditor of an estate, generally creditors have a year from the date of death to claim against the estate. The most common claims are credit card debt. If you file a probate proceeding and publish the Notice to Creditors in the local newspaper, it cuts the creditor period for unknown creditors to four months. C.R.S. 15-12-801 (Use Lexisnexis’s website to review statutes). The same works for known creditors you can prove they had actual notice of the published notice. You can also cut it down to 60 days if you intentionally give notice to a creditor of the estate. (Review the same statute). If they do not file their claim or petition to allow their claim, it is barred forever (there are always exceptions, but they are not covered here). The reason why creditor periods are important is if you distribute the assets to heirs before the creditor period expires, you might be liable to that creditor if they have a valid, timely claim.

 

If you need assistance with the estate administration, please contact Reams & Reams at (970)-242-7847.

 

The material presented on this site is included with the understanding and agreement that Reams & Reams is not engaged giving legal advice by posting material on this website. The services of a competent professional should be sought if legal or other specific expert assistance is required. Further, the firm does not wish to represent anyone desiring representation based upon viewing this website in any state or jurisdiction where this website fails to comply with all laws and ethical rules. The firm is also only licensed to practice in the State of Colorado. Any material presented on this site may be different or incorrect in another state. Please consult any attorney before using any of this information.

Probate Questions from last presentation

At our last probate presentation we held at Immaculate Heart of Mary Catholic Church (if you would us to speak with your institution or group, free of charge, about Will, Trusts, and Probate, please contact us), there were a number of index cards with questions that we quickly answered. If you forgot or wanted more detail with those answers, I wanted to follow up with some of those answers on our site.

 

Some of you asked about the Colorado Judicial Branch website for the standard forms. You can find those forms here: https://www.courts.state.co.us/Self_Help/Index.cfm

I have also linked a couple of the forms from other resources on our resources page: http://dev.reamslaw.com/resources/

However, take caution with anything you download.

The number one piece of advice we tried to instill from the presentation: Refrain from downloading forms off the internet. If you must do it, have someone (preferably an attorney) review the document before signing it. These documents have legal consequences that sometimes take years and may spend a lot of your hard-earned assets to fix in the court system if they are not done right. As I noted in the presentation, some of those forms, which purport to reflect Colorado law, are glaringly wrong.

 

Here were some of the index cards and my answers:

 

Question: I have a Colorado Will, but I will move out-of-state soon. Is this the Will still good? Vis-versa: I moved into Colorado and my Will is from another state.

Answer: Your Will is still generally valid from another state, but there are some things you need consider that you may want to update: What law governs my Will? (Most of the time, that clause is near the bottom of your Will.) If another state governs the interpretation of your Will or if it changes depending on which state your reside in, did distribution schedule of your Will change? (Terms like per capita at each generation or by representation may be defined differently in other states). Now that you have moved, will my nominated personal representative be able to efficiently administer my estate or will he or she have to delegate from afar? The marital rules may have changed, especially if you moved into a community property state such as California. Does the new state allow common law marriage and will that effect the outcome of your Will?

 

Q: Do you prepare medical and financial powers of attorney?

A: Yes, and we prepare them along with your Last Will and Testament and Advanced Directives to give your medical agent instructions in certain situations. Most estate planning attorneys can provide all of these documents for your estate plan.

 

Q: If most of my assets are in a 401k, should I still have a Will?

A: If your 401k has a listed beneficiary other than the Estate, this is considered a non-probate asset. That means upon death, it will generally be distributed to whomever is the listed beneficiary, no matter what your Will says. There are always exceptions to this rule, but generally non-probate assets trump your Will. However, even if all of your assets are going to be distributed outside your Will, we recommend a Will as a backup. There may be cases where you missed an asset, or the beneficiary designation is ineffective, or any issue that may arise. The most important thing to consider is making sure your estate plan is consistent. Without a Will, the distribution of assets may not be what you intended.

 

Q: What is the quickest type of Will to put together?

A: In Colorado, if you need to make a Will immediately and you have the capacity to do it, you may write out your Will in your own handwriting (on a legal pad, napkin, or any medium available) and then sign it. For some reason, Colorado does not require it to be dated, but I recommend it in case you do more than one. In this form, it does not need to be witnessed or notarized, but I recommend that too to confirm it was you who signed it and to prevent forgery or undue influence. Colorado refers to this as a holographic will. However, I do not recommend you continue to use this as your Last Will and Testament. Any mistake and ambiguous term or clause may invalidate it or create litigation among your family.

 

Q: Do I need a Trust?

A: My general answer to this question for most of my clients is No, but it depends on the person’s needs and estate plan. Trusts are complicated and difficult to manage if you do not maintain them appropriately. Colorado has a very efficient probate system, unlike California, which has seemed to have created the trust problem. Unlike California, lawyers cannot charge percentages (I have seen in some instances where they have, but the percentage has to be reasonable to services rendered on behalf of the estate.). The high commissions in California have resulted in a lot of trusts, because people have tried to avoid the probate system. In Colorado, I only recommend trusts if it serves a particular purpose, such as, but not limited to

  • Beneficiaries that are disabled, on special needs, public assistance, or minors
  • Beneficiaries have issues with financial responsibility and have creditors
  • Beneficiaries are incarcerated
  • You want give your beneficiaries their inheritance over time or when they reach a certain milestone rather than in one lump sum
  • Tax or marital issues
  • Medicaid issues
  • Real property in multiple states or multiple properties that need managed

 

Q: In Colorado, does a financial power of attorney expire on death?

A: Yes. Your authority to act as an agent under a financial power of attorney terminates on death.

 

Q: How much does a Will cost?

A: It depends. At our firm, we strive to keep the costs low. Please see our Estate Planning page to understand the factors of the cost and how you can lessen the cost. Estimated costs that I have seen in other firms range from $300 to $2,000; however, the market average in Mesa County seems to center around $500 to $1000. If you know someone who has done their estate plan recently, ask them about their experience and who they would recommend.

 

If any of these questions concern you, we recommend you have someone review your estate plan. Contact us today at 970-242-7847.

 

The material presented on this site is included with the understanding and agreement that Reams & Reams is not engaged giving legal advice by posting material on this website. The services of a competent professional should be sought if legal or other specific expert assistance is required. Further, the firm does not wish to represent anyone desiring representation based upon viewing this website in any state or jurisdiction where this website fails to comply with all laws and ethical rules. The firm is also only licensed to practice in the State of Colorado. Any material presented on this site may be different or incorrect in another state. Please consult any attorney before using any of this information.