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Necessary Financial Steps When a Loved One Passes

Posted 12-13-2011  |  By Katie Haskins  |  Download Article

The last thing anyone should have to deal with when they are mourning the loss of a loved one is taxes and estate administration. However, taxes and estate administration must be addressed soon after death to make sure appropriate forms are filed and necessary elections are made. With advanced knowledge of the process, the stress of estate taxes and administration can be minimized.

This article addresses steps to take once a loved one passes away. Since every situation is unique, please work closely with the decedent's attorney and accountant to be sure these steps are necessary and followed.  

1. Notify the decedent's attorney and accountant.
2. Identify the personal representative of the estate or trustee of the revocable trust.
3. If there is a will, have the personal representative file for Letters Testamentary to give him/her authority over the estate's assets and liabilities.
4. Get copies of certified death certificates.
5. Apply for a federal tax identification number for the estate or trust.
6. Gather an inventory of the decedent's assets and liabilities as of the date of death, making note of how the assets and liabilities are titled. This will assist the attorney and accountant in determining whether or not a probate or estate tax return is necessary.
7. Contact financial institutions to transfer the decedent's assets and liabilities into an estate account and to pay life insurance proceeds to the appropriate beneficiaries.
8. If probate is necessary, the decedent's attorney may assist you with the probate paperwork. A probate is necessary if there are assets that pass through the decedent's will.
9. File estate tax returns. In 2011, the federal estate tax exemption is $5 million and the Minnesota estate tax exemption is $1 million. If the decedent's assets total more than $1 million for Minnesota residents, the estate must file a Minnesota Form M706. If the decedent's assets total more than $5 million, the estate must file a Federal Form 706. Both forms are due nine months after the date of death.
10. File fiduciary income tax returns. In addition to the estate tax returns, the estate may have a fiduciary income tax filing requirement. Federal Form 1041 reports the income earned on the assets held by the estate during the period of estate administration. The Minnesota fiduciary income tax return is Form M2.
11. File final individual income tax returns. The final individual return is filed on Federal Form 1040 and reports income and deductions from January 1st of the tax year through the decedent's date of death.
12. File gift tax returns. If the decedent made gifts in the tax year he or she died, a federal gift tax return, Form 709, may need to be filed.

This list is not exhaustive, but gives an outline of many of the items that need to be addressed when a loved one passes away.

You can assist your loved ones in case of your death by keeping organized records of your accounts and putting together a schedule of your assets and liabilities that you update on an annual basis. Keeping a list of your trusted advisors (i.e. accountant, attorney, financial advisor, etc.) would also be helpful for those taking care of your financial matters after your death. Maintaining current wills and trusts and reviewing those documents with your personal representative is also important to ensure your wishes are carried out.

For more information, please contact Katie Haskins, MBT, CPA, at khaskins@hlbtr.com or 651-407-5883.