Estate Planning Forum: timing the termination of an estate.A recent question on CalCPA's Estate Planning Estate Planning The overall planning of a person's wealth, including the preparation of a will and the planning of taxes after the individual's death. Notes: Contrary to popular belief, estate planning involves much more than preparing a will, and it is not only for the Forum dealt with the timing of the termination of an estate. The estate had a significant capital loss, which would be available to the heirs when the estate filed its final income tax return. The CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. requested clarification of the proper timing for closing of the estate. In short, what event establishes the date on which the estate is ended, for income tax purposes? Rick Franceschini, a CalCPA Estate Planning Committee charter member, directed the questioner to Regulation 1.641(b)-3, Termination of Estates and Trusts. There is some judgment to be exercised in determining when an estate or trust is terminated. In the case of a probate probate (prō`bāt), in law, the certification by a court that a will is valid. Probate, which is governed by various statutes in the several states of the United States, is required before the will can take effect. estate, there will be a final order for distribution, and the assets of the estate would be distributed some time after the order by the Probate Court probate court n. A court limited to the jurisdiction of probating wills and administering estates. Noun 1. probate court - a court having jurisdiction over the probate of wills and the administration of estates . "[A]n estate will be considered terminated when all of the assets have been distributed except for a reasonable amount which is set aside in good faith for the payment of unascertained or contingent liabilities Contingent Liability 1. The possibility of an obligation to pay certain sums dependent on future events. 2. Defined obligations by a company that must be met, but the probability of payment is minimal. Notes: 1. and expenses ...," according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. the regulation. This can be comforting to those who thought that all of the assets had to be distributed before the estate could be considered closed. An executor's fear that a small checking account might be considered a violation triggering ongoing income tax return filings appears to be unfounded. Similar provisions apply to trusts. Termination occurs when substantially all the assets are distributed. A reserve of a reasonable amount for payment of expenses is permitted and should not prevent filing of the final trust return. There are other situations considered in the regulation regarding termination of trusts. If an income interest in a trust ends with the death of the income beneficiary Income beneficiary One who receives income from a trust. , the income is allocated to the income beneficiary until the date of death, and the remainder afterward. The income would be distributed via Schedule K-1 (Form 1041). Visit the Estate Planning Forum at www.calcpaweb.org/webforum. --BILL DOWNS, CPA |
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