Introduction

This country is aging. Fewer babies are being born, and people are living longer and longer. They’re also managing to accumulate more and more wealth. Wealth is relative; two generations ago, a middle-income family owned a house and maybe a car and perhaps even had a little money in the bank. Today, that scenario has become much more complicated. Many who would never consider themselves wealthy now own more than one home and have investments in the stock market, retirement accounts that continue on after death, and debt up to their eyeballs.

With this increased complexity in financial affairs comes a parallel complexity in transferring all these accumulated assets to the next generation(s), either at death or before. In the past, heavy-duty trusts were only for the very wealthy; today, they’ve become part of the legal landscape for ordinary Americans. And because ours is a do-it-yourself society in so many aspects, that I-can-do-it-myself attitude has carried over into trust and estate administration. Why, many people ask, should they pay someone else to do work that they themselves can perform just as well for a fraction of the cost?

And that’s why we wrote the second edition of this book. Between the two of us, we have more than 60 years of estate and trust administration experience. In that time, we’ve come across some unusual situations in our careers and devised ways to avoid standard pitfalls that await the unwary. We wrote this book to share with you some of this accumulated wisdom — and to help you avoid the mistakes that we’ve made (or narrowly avoided).

About This Book

Estate & Trust Administration For Dummies, 2nd Edition, is the practical reference for those who find themselves appointed as executor, administrator, or personal representative of an estate, or as trustee of a trust. In these pages, you can find advice on what to do — and what to avoid — as you acquire, manage, and dispose of assets that belong to the estate or trust you’re administering.

The world of estate and trust administration is one that can baffle you before you ever get out of the starting gate. You’re asked to make decisions literally before you’ve had the opportunity to process that your friend or family member has died. In those first days after a death, when so much of the world seems like it’s at sixes and sevens, you need to decide about the funeral, collect house keys, find the decedent’s last will — the list seems endless, and so are the opportunities to have seemingly innocuous items fall through the cracks.

That’s where this book comes in. We designed it to explain how you can administer an estate or trust by yourself. It gives you guidelines on what aspects of the work you can undertake on your own and which areas you really want to ask for an expert to help you.

Simply put, this book allows you to create and follow a road map toward successfully completing your appointed task without ripping out your hair and running into the streets screaming. You can use this book in a couple of ways:

• As a reference: Everything’s here, whether you have questions about probate, taxes, or how to plan a funeral. The world of trusts and estates can seem complicated, but it’s all governed by common sense and rules (and plenty of them).
• As an advisor: Some problems may seem unsolvable when you first confront them, but rarely is that truly the case. This book can help you find what questions you need to ask and who you should look to for answers. It gives you solid advice that you can literally take to the bank and lets you know when you would be better served by seeking professional advice.

We try to give you as complete information as possible, but trust and estate administration covers a lot of ground, much of it very complex. Still, we have to warn you that every situation is different, and periodically having a professional check your progress in administering any estate or trust is never a bad idea. At best, he or she will confirm that you’re doing a brilliant job; at worst, the pro will catch any mistakes you may be making before they have a chance to become really serious.

Conventions Used in This Book

To help you navigate this book, we use the following conventions:

• Italic highlights words or terms that are being defined. (We also use it occasionally for emphasis.)
• Boldface indicates keywords in bulleted lists or the action parts of numbered steps. It also flags the names of specific tax documents so you can find them easily in any discussion.
• Monofont tells you that you’re looking at a Web address.

What You’re Not to Read

We’d love for you to read every single word we wrote, but we’re also realistic and understand that you probably only have time for just the need-to-know information. If you’re overwhelmed and want just the essentials, you can skip anything marked with a Technical Stuff icon; all you’ll miss is some overly technical gibberish.

Foolish Assumptions

The world of estates and trusts is rife with assumptions, foolish and otherwise. Here are some of the assumptions we made about you:

• You’re not a professional trustee or executor, or a trust or estate administrator already (although even if you are, you should still find the information in this book helpful).
• You probably have no idea what you bit off when you agreed to act as either an executor or trustee, but you’re eager to find out.
• You’re not scared of hard work, both physical and mental, and you’re not afraid to delegate. You can do much of what needs to be done in administration yourself, whether it’s prying up floorboards in search of the secret money stash or creating a probate account, but you recognize that sometimes paying someone else to do a task you feel unprepared to tackle makes perfect sense.

How This Book Is Organized

It really wasn’t difficult to organize this book because it naturally split itself into its component parts: defining a whole lot of terms and types of trusts you may not be familiar with, estate administration, trust administration, and finally transfer tax and income tax issues. The following sections outline the contents of each part.

Part 1: Getting Started with Estate and Trust Administration

What we both discovered when we first landed in law offices and started administering estates and trusts was that lawyers, judges, and just about everyone else involved spoke in code. Not only did they use words such as whereas and hereunder in general conversation, but they also threw around terms such as administratrix, CRATs, CRUTs, GRITs, and QPRTs like confetti at a wedding. In this part, not only do we give you the terminology that any executor or trustee worth his or her weight knows but we also explain who all the players are in estates and trusts (and, in the case of trusts, exactly what games are being played).

Part 2: Administering an Estate

Administering an estate is a multistep — sometimes simultaneous-step — operation that requires an eye for detail and sometimes a great deal of patience. In this part, we take you from soup to nuts: figuring out what the decedent owned (and owed), locating the necessary documents, figuring out who inherits, shepherding the estate through the probate process (if necessary), distributing what’s left after everyone who has a claim against the estate has been paid, and closing the estate for good. It may seem like a monumental task, but taking it one step at a time, even if those steps go in directions you don’t want them to, inevitably leads you to your desired conclusion.

Part 3: Operating a Revocable or Irrevocable Trust

Your duties as a trustee are different from the duties of an executor, and the scope of the work is generally less intense, although it takes longer. In this part, we acquaint you with what powers you have as trustee and what duties you’re expected to perform. We explore your relationship to the trust’s beneficiaries and how to keep it cordial. Plus, we explain how to keep the necessary records and how to terminate the trust after its job is done.

Part 4: Paying the Taxes

Because the IRS considers trusts and estates separate entities, you have the enviable task of making sure that you file all necessary tax returns on time. We walk you through preparation of a simple estate tax return (Form 706) and through the annual income tax returns for trusts and estates (Form 1041). We also explain what you need to know to prepare the decedent’s final Form 1040. Finally, we show you how to report to beneficiaries any income you may have distributed to them so they in turn can declare that information on their Form 1040.

Part 5: The Part of Tens

What would a For Dummies book be without the Part of Tens? In this part, we reveal ten mistakes that are easy to make but even easier to avoid with just a little planning, as well as the ten different types of taxes a trust or estate may be liable for. And, in case that wasn’t enough, we’ve also included two appendixes. The first is a glossary. The second is a state-by-state list of basic rules of intestacy (dying...