Case Study: Navigating the Death of a Family Member

Catherine’s story.

After 50+ years of marriage, Catherine unexpectedly lost her husband, Ed. Catherine and Ed were longtime D&H tax clients, so we had many years of their financial documentation. We reviewed their previous tax returns and supporting documents and emailed Catherine:

A caution that this may seem overwhelming and may not make a lot of sense at this point. That is okay and you do not need to fully understand or take any action right now.

I am providing the information below as a road map that we can use moving forward.

I would like to schedule a meeting to help make sense of these steps. Also, I would like to reach out to your estate attorney and financial advisor to gather information as noted. Please let me know if you would like me to do so, as you will need to give them permission to share information with me.

Short-term to do list:

• Contact Social Security. If a payment is issued post date of death (DOD) it will need to be repaid.
• There is a brokerage account which is titled to you and Ed jointly. You should verify with your Financial Advisor that the asset passes by title to you automatically. You may also want to then re-title the account to your own Trust.
• There are three accounts at the Bank titled to Ed’s Trust. These accounts will need to be transferred to new Trust accounts. See Ed’s Trust section below.
• Ed’s IRA will need to be distributed to the Beneficiary. If you are the beneficiary and the current year Required Minimum Distribution (RMD) has not yet been taken, you will need to do so before year-end. You also have options as beneficiary. We can discuss your options with your Financial Advisor.
• There are two pension payments Ed received last year. We will want to verify that the pension payments end at Date of Death (DOD) or if Ed had set them up to be paid out to you as his spouse. Additionally, there are sometimes life insurance policies associated with Employer Pension Plans. We can assist with gathering more information so that we can determine next steps.
• We need to determine if there are other assets in the estate or trust and how your property is titled so that we can determine how these assets will be administered.

Individual Taxes.

• Individual returns will be filed for the current year for you and Ed as Married Filing Jointly.
• The income will include jointly earned income and earnings on the brokerage accounts titled to Ed’s Trust up to the DOD. Earnings after that date and before the assets are moved to a new Trust account will be included on a return specifically for the trust (see below). It will be helpful to have the most current statements so that we can allocate the income when the return is prepared as the Form 1099 sometimes does not include the details needed. We can request this information from your Financial Advisor.

Ed’s Estate.

We know that Ed was working with your estate attorney on an estate plan. We should review that plan to determine what other steps should be taken. If you would like me to reach out to your attorney directly, I am happy to do so.

A Federal Estate Tax Return will be required if the total of the Fair Market Value of Ed’s assets held at the DOD plus the lifetime taxable gifts made exceed the filing threshold. A state filing will have to be above a different threshold. This will require that we prepare an accounting of the assets. Let’s reach out to your Financial Advisor to determine the value of the investment accounts which represent most of the estate.

Based on a review of the Will, any probate assets will be distributed to the Trust. All other assets appear to be either titled to the Trust or titled to pass directly to the joint owner or designated beneficiary.

Ed’s Trust.

The Trust became an irrevocable trust on the DOD and annual returns will be required until the trust is fully distributed.

A review of the trust document will need to be made to determine how the assets will be handled.

Based on our review, the trust holds several brokerage accounts. The assets in the trust will need to be transferred to new accounts in a new EIN (Employer Identification Number) specifically for the Trust. This EIN will be needed to open new investment accounts for the trust. We can assist with this if you have not already done so.

There is a lot to consider, and the amount of paperwork alone demands a high level of organization. As a result, grieving family members are often left feeling confused and overwhelmed.

At D&H we know our clients personally and have their financial data at our fingertips. This enables us to provide them with a prioritized list of action items which act as their roadmap. Our goal is to ease their burden so they can focus on healing.

Recipients should not act on the information presented without seeking prior professional advice. Additional guidance may be obtained by contacting Davis & Hodgdon CPAs at 802-878-1963 (Williston) or 802-775-7132 (Rutland).