After a death: The basic steps to take

The reason for this confusing time is because (1) people own many different types of assets, and (2) a family member's death is a unique event for most people.

These two facts combine to make a confusing time for many. We aim to make it much less overwhelming.
​
Background:  While we're living, we own many types of assets and hold them in various types of ownership.

There is ownership that is sole, jointly with another with rights of survivorship, tenants in common without survivorship, in a trust, by contract (life insurance, etc.), pensions, IRAs, POD (payable on death). You get the picture. 

After death, you need to look at each asset, determine who precisely owns it, and determine each value at death.

The steps needed to transfer to others depends on who and how they own an asset. State law determines the steps needed.

In addition to retirement accounts that Federal law regulates, Federal law also has a major role in defining the way a person is subject to estate tax - even if the large ($11 million) Federal exemption from the tax applies to eliminate actual tax payment.

In terms of ownership, 'joint assets with survivorship' become owned entirely by the surviving joint tenant. But tax law still says that 1/2 of the joint asset is calculated as part of your gross taxable estate.

So, don't confuse these rules of transfer with the tax laws - they are not the same. 

Estate tax and  Income tax concerns at death

At death, you should investigate both the estate tax and income tax situation. 

Income tax considerations come into play like this: At death, most of your assets get a new income tax basis. The income tax basis is the number that your income tax is based on when that asset gets sold sometime in the future.

Obtaining these date of death values is central to the MA post-death process. Because if a higher value as of death than the date of purchase is available, then on the asset's future sale, the capital gain will be lower.

Will or trust ownership at death

​A Will affects who will own the assets you own in your sole name on your death. It doesn't affect your other assets owned in a different way on your passing.

If you're married, the number of assets in your sole name can be quite limited. Many married individuals own the bulk of their assets jointly with rights of survivorship. Look at your MA deed, for example. 

If you're married, the deed may likely read 'as tenants by the entirety' after your names at the deed's top. This is like joint ownership with survivorship. These kinds of assets do not need to go through the probate change of ownership approach.

Trust ownership at death

Another way you can hold title to assets is by having a living revocable trust own the asset at your death.

Trust ownership is not sole ownership, and so these assets are not affected by your will.

​When a trust owns assets at your death, we say that the trust is 'funded.' This means your trust owns assets at your death. 

Trust ownership avoids probate

If a person dies without any sole assets in their sole name, their affairs are said to avoid probate.

Probate is considered an expensive and time-consuming process - for some people, avoiding probate is a major reason to have a MA living trust.

Again, when assets are in the name of your MA revocable living trust at your death, those assets do not pass through probate. 
​

1.  Income tax after death

​After a death, a surviving person must deal with any outstanding income tax return filing.  For the first year after a passing, the income tax return filing can be more complicated than during the person's life.

The greater complexity arises because, on a person's death, the tax law states that a 'new taxpayer is born.' The new taxpayer is sometimes called the estate, and if the person had a trust in place at death, the tax new taxpayer is called the administrative trust.

Federal form 1041 for the new taxpayer after death

On the federal level, the new taxpayer must file a form 1041 for its first tax year. And if the new taxpayer continues beyond the first year after the death, then additional form 1041 income tax returns need to be filed for each year.

2. Duties following death

2After a person has died in Massachusetts, the person named in their will or trust have several duties to perform.

The first one is to identify the assets and debts the deceased person had. Then, they or their attorney should determine the exact ownership and exact value of each asset as of the date of death.

When you have determined the value of all the assets, because of Massachusetts law, you need to add the individual values to determine the total gross estate.

Massachusetts Estate Tax Return

If the gross estate is over $2 million, in Massachusetts, you need to prepare and file a Massachusetts estate tax return. This form is lengthy, and frequently over 20 pages. 

The Massachusetts estate tax return is called the M706. It is a snapshot of the assets and debts the person had as of their passing.

If the deceased person was married, then the MA estate tax return will show a deduction for the amount that goes to the surviving spouse. This deduction generally results in no estate tax being actually paid - instead, you must only file the M706 --- but do not need to send a check to the  State of Massachusetts.

​RETURN to Post Death Administration Services page

3.  Distributions after death

​After you pay any MA and Federal estate tax, the MA personal representative or trustee should distribute the assets according to the provisions of the will or trust. Another term for the MA personal representative is the Massachusetts executor.

By the way, the MA personal representative gets their authority after a MA probate court approves of them. While the will nominates or suggests who the court will approve, the probate court judge actually decides who will be appointed the personal representative.

The appointment of a MA personal representative is a central component of the probate of MA will.

4.  If surviving spouse is not a U.S. citizen

The tax law has a special provision if your surviving spouse is not a U.S. citizen at your death. 

Since 1988, the tax law has required that if you want to receive a marital deduction when married to a non-U.S. citizen, you must have a special provision in a will or, more likely, a MA living revocable trust.

The special provision is called a QDOT, and this means a Qualified Domestic Trust. This Federal law requires that at least one trustee after your death must be a U.S. citizen.
​
And the U.S. trustee must comply with the QDOT provisions. If they distribute any principal of the marital trust to the surviving spouse, then the U.S. trustee must file a special tax return with the IRS and pay a tax along with the QDOT tax return.

​RETURN to Post Death Administration Services page

5. Duty to track income

​The will's personal representative (aka MA executor) or after death trustee of the MA revocable living trust should also track the income the estate or trust receives after death. 

This duty to keep track of the income received by the estate or trust until the final distribution of all the assets is important. Because depending on who gets which particular asset, you should also deliver its income to the to the correct person. The law in this area is a bit complicated. You need to use special care to make sure the tracking and distribution is properly done.

6.  Duty to provide accounting

​The MA personal representative/executor or successor trustee must prepare a report showing all the income and distributions made to any creditor or beneficiary.

The beneficiaries may waive this right to receive an accounting. If waived, it is better to have the waiver signed in writing, rather than to ignore the issue. If you ignore the issue, after a while, the law will consider that the beneficiaries have waived an accounting. Yet this can be an expensive legal battle.

If a will and a probate court is involved, previous Massachusetts law required you to create and file an accounting in that court. 

The newer Massachusetts law allows you to file the accounting either in the probate court, or instead you can send the accounting to each  beneficiary.

​RETURN to Post Death Administration Services page

7. Duty to treat each beneficiary in a fair, transparent manner

​A MA personal representative/MA executor or trustee must treat each beneficiary impartially.

The law requires fair treatment for all beneficiaries, and this is a fundamental aspect of trust law - which applies in both will and trust matters similarly.

8. Will vs. Trust after a death

2
A significant difference between the post-death handling of a will versus a trust is that a trust does not need to go through the probate court process.

For many people, this distinction is essential. I believe it is just one factor in the estate planning choice between using a will or a MA revocable living trust.

After death, there are many details to attend to and time-consuming.

Whether or not a person's post-death administration includes a probate court process, you must deal with an almost endless stream of details after death.

Whether or not a probate court process is part of the issues, there needs to be filed for Massachusetts a Massachusetts estate tax return if the gross taxable estate is over $2 million. 

Whether a trust or a will is involved, the person in charge must be an honest, detailed, and an excellent communicator. The person needs to be fair with each beneficiary and equally treat them.

The time needed to complete a trust-based estate plan will generally be shorter than when using a will-based estate plan.

The absence of the probate court involvement when a MA living revocable trust is involved is beneficial to lower the publicity of the probate court process.  When no court is involved, this may lead to a lower sense of confrontation and greater privacy in general.

RETURN to Post Death Administration Services page