Are you qualified to settle an estate?
August 15, 2023
Estate settlement involves a great range of technical knowledge and skill. Think you might have what it takes to be an executor (or, as the job is more formally known, personal representative)? See if you can answer these true-false questions about estate settlement.
1. The federal estate tax is due exactly one year after death.
2. The executor must pay death taxes (estate and/or inheritance taxes), not income taxes.
3. The marital deduction always permits property to pass to a surviving spouse free of federal estate tax.
4. An executor has no personal responsibility for making tax payments; the obligation is on the estate.
5. If an estate does not owe estate tax, the estate administration expense is wasted.
6. A will leaves “my 100 shares of IBM stock to my son, John.” However, the estate does not include any shares of IBM. John will instead receive cash equal to the value of 100 shares of IBM.
7. Grandfather’s will provides “All the rest and residue of my estate shall be divided among my grandchildren per stirpes. A son had one child, and a daughter had three children. The four grandchildren will share the “rest and residue” equally.
8. An investor’s estate consists largely of stocks. Unfortunately, the market tumbled 25% shortly after the investor’s death. Nevertheless, the estate tax will be due on the value of the shares on the date of death.
9. An insurance policy taken out in 2005 lists the poli- cyholder’s daughter as beneficiary. Years later he included a will provision that a son should get the proceeds. The son will be entitled to the insurance money.
10. A business owner’s will divided his business between his three children and left $150,000 to a longtime friend. Unfortunately, the business went bust before the owner died, and he never changed his will. The children will at least share the $150,000.
ANSWERS
Although every estate presents different challenges, and probate laws vary from state to state, each of the above statements is generally false. Here are the correct answers.
1. The federal estate tax is due nine months after the date of death, not one year.
2. The executor is responsible for paying fiduciary
income taxes, estate and inheritance taxes, gift taxes due and unpaid before death, and, in certain large estates, the generation-skipping transfer tax.
3. One restriction on the marital deduction is that the spouse must be a U.S. citizen, or else the property must be placed into a Qualified Domestic Trust.
4. An executor is personally liable for making estate tax payments until formally discharged of that obligation by the IRS.
5. Estate administration expenses are deductible against the estate tax or the income tax, at the executor’s option.
6. When property specifically mentioned in a will is not present in the estate, the bequest fails. John will receive nothing under this will provision.
7. The child of the son will receive half of the balance of the estate, the children of the daughter share the other half. For them to share equally, the will must state per capita, not per stirpes.
8. The executor has the option of using the alternative valuation date, six months after the date of death.
9. Insurance proceeds are paid according to the policy terms, will that was made later.
10. Specific bequests are made before residuary bequests. The friend will receive his $150,000 even if the children receive nothing.
If you answered “true” just once in taking this quiz, the job of estate settlement may not be for you. A single mistake by an executor can lead to costly litigation and delays for beneficiaries.
By the way, could the executor named in your will score a perfect 10? If not, you should consider naming us instead to serve in that capacity.
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