Estate Accounting

Effective estate planning requires not only an understanding of the concepts of Federal and state estate taxation, but also a familiarity with the estate administration process and related income tax issues. With this comprehensive background, the attorney, tax advisor, or financial service professional can create an estate plan with full awarenessof the issues surrounding the death of a client and can better assist administrators, trustees, beneficiaries, and other professionals with post-mortem issues.

There are different types of accountings that must be prepared throughout the estate planning and probate process. While there are many similarities, each type of accounting has special requirements which must be carefully observed.

1. Probate Accounts. Those accounts required to be filed in Probate Court for probate estates. Itemized statement of all receipts and disbursements during accounting period are required along with a detailed statement of all holdings at the end of the accounting period.

2. Principal and Income Accounting. The Uniform Principal and Income Act that is used in a majority of states provides guidelines for preparing an accounting for the court or for the beneficiaries.

3. Tax Accounting. Depending on the size of the estate, it may be necessary to file an state Estate tax return and a Federal Estate tax return. It will also be necessary to file final income tax returns for the decedent. Depending on the circumstances, you may also have to file Federal and state trust or estate tax returns.

Goals of Estate Accounting/Planning

Who receives your property?
Deciding who you want to receive your property is at the heart of estate planning. It is a common misconception that estate planning is just for the very wealthy. There are a number of factors that might affect the way you choose to distribute property to your beneficiary(ies), such as:
1. Giving away money before you pass away.
2. Estate tax could affect how you leave property to your beneficiary(ies).
3. Naming alternative beneficiary(ies).
4. Leaving property to an adult for the benefit of a minor, instead of to minor
5. Leaving property in Trust for a spouse, child or other beneficiary(ies).

Planning for Incapacity
In addition to deciding who will receive your property, effective estate planning addresses other goals, such as planning for the possibility of incapacity. What happens if you become incapacitated and are unable to make financial or medical decisions for yourself? Living Trusts can be drafted to avoid guardianship proceedings. A complete estate plan should also include a Durable Power of Attorney for financial decisions, a Durable Power of Attorney for healthcare decisions and Living Will.

Providing for Minor Children
An important goal of estate planning for many clients is to provide for the care and support of minor children. In addition to naming a legal guardian for the children, you also may make provisions for their financial benefit, structuring a plan so that children are not responsible for large sums of money at a young age.

Minimizing Estate Taxes
The minimization of estate taxes, both state and Federal is an important goal of estate planning. Historically, estate taxes were imposed as a social policy to distribute wealth.