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C H A P T E R

C H A P T E R. 19. Updated Sixth Edition. Accounting for Estates and Taxes. Estate Accounting. Laws governing wills and estates are called “probate laws”. Each state establishes its own laws of descent and laws of distribution . 50% of states have adopted the Uniform Probate Code. Will.

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C H A P T E R

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  1. C H A P T E R 19 Updated Sixth Edition Accounting for Estates and Taxes

  2. Estate Accounting

  3. Laws governing wills and estates are called “probate laws”. Each state establishes its own laws of descent and laws of distribution. 50% of states have adopted the Uniform Probate Code. Will Estate Accounting Probate Laws generally have 3 purposes: • Gather and preserve all of the decedent’s property. • Carry out an orderly and fair settlement of all debts. • Discover and carrying out the decedent’s intentions for remaining property at death.

  4. Administration of the Estate Probate Process 1. The will is presented to the court. 3. An executor or administrator is assigned. Entitled to compensation. 2. The court rules on the will’s validity. 4. The terms of the will are carried out.

  5. Order of priority: Expenses of administering the estate. Funeral and medical expenses. Debts and taxes. All other claims. Discovery of Claims Against the Estate Types of Gifts: • Specific legacy. • Demonstrative legacy. • General legacy. • Residual Legacy.

  6. Order of abatement in the event of insufficient funds to pay debts and expenses: Residual legacies. General legacies. Demonstrative legacies. Specific legacies. Discovery of Claims Against the Estate

  7. Estate and Inheritance Taxes

  8. Funeral expenses. • Admin. expenses. • Liabilities. • Casualties & thefts. • Charitable bequests. • Marital deduction. Federal Estate Taxes

  9. State Inheritance Taxes Often, recipients of property, must contribute cash to the estate to cover the applicable taxes. Estate Income Taxes Any income from the estate assets is taxable to the estate. An exemption of $600 is provided. Separate tax rates are available for estate income. Other Estate Issues

  10. The recipient of estate income is called the “income beneficiary”. The recipient of the estate principal is called the “remainderman”. How income is to be determined should be defined by the decedent in the will. The Distinction Between Income and Principal Principal of the Estate often includes: • Life insurance proceeds. • Dividends. • Debts. • Funeral expenses. • Gains/Losses from sale of assets. • Homestead and family expenses. Income of the Estate often includes: • Recurring taxes such as property taxes. • Ordinary repair expense. • Utility expense. • Insurance expense. • Other expenses necessary for the management and preservation of the estate.

  11. Recording the Transactions of an Estate

  12. A periodic statement disclosing progress in settling the estate. Separate statements are required for income and principal. Each statement reports: Assets under the control of the executor. Disbursements made to date. Any property still remaining. Charge and Discharge Statement

  13. Let’s look at accounting for trusts.

  14. Accounting for a Trust The conveyance of assets to a fiduciary who manages the assets according to the stipulated instructions.

  15. inter vivos trust testamentary trust VS. Accounting for a Trust The conveyance of assets to a fiduciary who manages the assets according to the stipulated instructions. A trust established while the trustor is still alive. A trust established by the will after the trustor’s death.

  16. Credit Shelter Trust Qualified Terminable Interest Property Trust Charitable Remainder Trust Charitable Lead Trust Grantor Retained Annuity Trust Minor’s Section 2503(c) Trust Spendthrift Trust Irrevocable Life Insurance Trust Qualified Personal Resident Trust Different Types of Trusts

  17. Adjustments to the Trust’s Principal: Investing costs and commissions. Income taxes on gains added to the principal. Costs of preparing property for sale. Record-Keeping for a Trust Fund Usually, the cash basis is used to record trust fund transactions.

  18. Adjustments to the Trust’s Income: Rent expense. Lease cancellation fees. Interest expense. Insurance expense. Income taxes on trust income. Record-Keeping for a Trust Fund Usually, the cash basis is used to record trust fund transactions.

  19. End of Chapter 19 Bob, if anything happens to you, can I have your golf clubs? Wow! Sounds like Bob’s trip could be dangerous!

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