I have had the opportunity to serve as trustee for a fair number of clients. Some of them, those that have substantial assets, often arrange for our services long before anyone has passed away. In these cases, we may (often) be involved in the construction of the trust and the goals of the trust when the principal has passed.
But, we also get involved after someone has died. (Some 1.5 million Americans become widowers or widows in any given year; about 2/3 of them are widows.) Because the rules for taxes and probate are complex. And, often times, it was the other spouse- the deceased one- that handled the family finances and tax filings.
Which brings up the estimated tax filings. These must be made in a timely fashion, or the IRS will impose penalty.
But, there are other immediate (or at least two year) questions. For example, if the surviving spouse sells the family abode within two years of the spouse’s death, the exemption on gains remains $ 500K- not the $ 250K that would apply to single taxpayers. Or- conversion taxes on IRAs are lower in the year the spouse dies, so converting a traditional IRA to a ROTH IRA quickly can save big money.
Surviving spouses often roll over inherited retirement accounts (IRA, 401(k)) into their own name- unless they are under the age of 59.5. Because that rollover requires an RMD (required minimum distribution)- and below age 59.5, there is a 10% penalty.
The requirement to file Form 706 (Estate Filing Form) only cuts in when the estate is valued at $ 11.7million or higher. But, it may be useful to file one for smaller estates to deal with State probate laws or to use the spouse’s exemption and have it apply now to their estate. (While estate taxes come due around 9 months after the spouse’s death, the unused exemption can be applied for up to two years after the death.)
Another issue is the sale of stocks. Because the surviving spouse gets to file a joint return ONLY for the year of death. And, there are substantial differences in the tax rates due for single taxpayers compared to married filing jointly.
All these decisions while still dealing with grief and loss.
That’s why we are there to help.
My Dad died in April. My Mom had no idea what their financial picture was – and my brothers thankfully swooped in with the professionals and got things in order. It has been a difficult transition time – selling and getting rid of things… my “job” was primarily caretaking.
Thanks for this information. It’s very helpful.
Julie JordanScott recently posted..What Happened When the Inner Critic Crashed the Forest Bathing Party
Sorry it wasn’t timely enough for your needs, Julie! But, hopefully, others can garner benefits.
thank you. this is important information to know.
Glad to oblige, Cheryl!
That would have been helpful after my mother’s death 3 years ago! Ny husband and I are in the process of getting out estate planning established — we have to set up several entities because my daughter has special needs.
Dominique recently posted..15 Spectacular Places to Visit in the Wintertime in the United States
Great planning, Dominique. Especially with your family situation.
So much for the surviviors to do. We have our estate planning including DNR all squared away so our granddaughter will hopefully not have much stress when the time comes.
Martha recently posted..Homemade Lasagna
Glad to hear about your preparations, Martha!
Roy, great points, some new to me. My husband passed several months ago, so I am putting together what’s needed for our last joint tax return. It’s so good to know that people with your knowledge base exist!
Kebba+Buckley+Button recently posted..Healthy Happy Loving Life: All is Good on Wordless Wednesday
Sorry to have heard about your husband, Kebba. Make sure you get all those tax bennies that you can!
I am not sure about the inheritance rules and
taxation around it in India.A good thing to keep in mind .Now I need to find out
I won’t claim to be expert on the rules in India, either, Dr. A. And, I don’t think you have those capital gains rules on the sale of an abode, either.