Closing Tasks after a Death
The things to be done after a death have been divided into three periods (immediate, soon-after, and closing) for convenience, some of these have to be done at the same time as time and resources permit. The tasks below take longer time as they involve legal procedures and are usually the final tasks to be completed.
Settle the Estate
Assets of the decedent with named or implied beneficiaries (e.g., Joint Owners with right of Survivorship) are considered ‘non-probate’ assets. They can be transferred to the respective beneficiaries by providing the Death Certificate and a personal identification. If an Estate Plan cannot be located, the person is considered dead ‘intestate’. If the assets are more than a certain value, the court has to distribute the assets according to state laws. You should consult an attorney to handle this situation and provide him/her with a list of assets.
Hopefully the decedent had prepared an Estate Plan and you have found it. If the Estate Plan has a Last Will and Testament and you are not the Personal Representative (PR) or executor named in the Will, you are required to give it to the PR within 20 days or file it with the Superior Court of the county where the decedent lived. The PR named in the Will is required to file the Will (within 40 days in Washington State) with the court. Once it is filed, it is a public document and anyone can get a copy from the court. Small estates can be handled with a simple affidavit. Washington does not require probate but the Will must be filed. If the assets owned in the name of the decedent exceed a certain amount or includes real estate, a probate may be required. The PR should consult an attorney as to whether a probate is necessary. When making an appointment with the attorney, ask for a list of documents you need to bring. The assets can be distributed to the respective beneficiaries by the PR if probate is not needed or with the court approval. If the decedent owned real estate in his/her name in states other than his/her residence, a probate may be needed in each of those states. Once the court issues permission (Letters Testamentary) to distribute the assets according to the Will, the PR may do so. If the PR needs to sell any asset, the sale should be done so that there is sufficient evidence (e.g., an appraisal) it was sold for the then current market value.
If the Estate Plan has a Trust, any asset in the name of the Trust can be managed or distributed according to the terms of the Trust by the Survivor Trustee. Any asset that is in the name of the decedent should be moved into the Trust with the Pour-Over-Will in the Estate Plan. Otherwise, a probate may be necessary for those assets.
Certain assets (e.g., real estate) may require a transfer deed and other documents that should be prepared by an attorney.
File Tax Returns
An Income Tax Return for the decedent should be filed by April 15th of the year following the death. If the couple had been filing as Married Filing Jointly, it can be filed the same way for the year of death. After that year, the surviving spouse may have to file as a Single person unless he/she has eligible dependents to file as Qualified Widower or as Head of Household.
If the total value of the decedent’s assets is more than the exemption amount ($5,340,000 in 2014) a Federal Estate Tax Return (IRS Form 706) must be filed within 9 months after the date of death. The exemption is portable in the sense the exemption not used by the decedent can be used on the death of the surviving spouse. However, an Estate Tax Return for the decedent must be filed to take advantage of the portability even if the value of the assets of the decedent is less than the exemption amount. So, if the total assets of the surviving spouse are expected to be more than the exemption at the time of his/her death, it is a good idea to file a return for the decedent. Washington State collects a State Estate Tax also. The exemption for this Tax is $2,000,000 in 2014. This exemption is not portable at present.
Beneficiary Tasks
If the surviving spouse is the beneficiary of all the assets, he/she should make sure that all titles are properly modified. If the decedent had a retirement account (IRA), it passes on to the specified beneficiary as a non-probate asset. If the beneficiary is the spouse, it can be transferred to the spouse’s own IRA account or as an inherited IRA account. The custodian (investment company) of the account should be consulted about the pros and cons of these choices.
Other beneficiaries should also make sure that the titles of the benefit assets are properly changed. If the inheritance is an IRA account, the non-spouse beneficiary can keep it only as an Inherited IRA. The required minimum distribution must be taken out every year based on the beneficiary’s age whether it is a Traditional or a Roth IRA.
Any beneficiary can cash out the IRA subject to the income tax rules.
Beneficiaries should keep in mind that an inheritance is considered as a long term asset (held more than a year) for income tax purposes even if the asset is sold in less than a year and that the cost basis is its value at the time of death.