You're the Executor
An Opera in Three Acts
ACT II: GATHERING ASSETS AND FILING TAX RETURNS
In Act I, you and your sister, Mimi, took Aunt Carmen's Will to Attorney Musetta, and
then to the Department of Court Records for Probate.
In Act II, you and Mimi must:
- send letters to banks and brokerage houses where Aunt Carmen had accounts to obtain date of death balances for her accounts;
- inventory her safe deposit box;
- appraise her house and sell it; and
- file the Pennsylvania Inheritance Tax Return and perhaps the Federal Estate Tax Return (706).
Mrs. Musetta already has at her disposal a letter to send to the banks and brokerage houses with whom Aunt Carmen did business. In order to determine the identity of these establishments, you and Mimi took a short certificate over to the post office and had Aunt Carmen's mail forwarded to Mimi's house.
You will make a prepayment of Pennsylvania Inheritance Tax within three months of Aunt Carmen's death in order to obtain a 5% discount on the amount that you prepay toward the liability. Pennsylvania inheritance tax starts at the first dollar of an estate and is applied at four rates:
Assets to spouse - 0%;
Assets to children and lineal descendants - 4.5%;
Assets to siblings - 12%;
Assets to anyone else - 15%.
You and Mimi, as nieces, are in the highest rate at 15%. You will want to take every deduction available, such as:
- expenses of Aunt Carmen's last illness (this includes nursing home expenses) related to her last illness;
- gravestone, funeral expenses, honorarium, and any meal after the services;
- legal fees; and
- expenses related to Aunt Carmen's house (i.e. taxes, utilities, repairs, etc.) if it is not to go to a specific person. If it is to go to a specific person, those expenses are not deductible since the house belongs to that specific person as of the date of Aunt Carmen's death by operation of Pennsylvania statutory law. Expenses of sale are also deductible.
You and Mimi keep your eyes and ears open regarding any additional assets that might turn up. With the help of Mrs. Musetta, you file the Pennsylvania Inheritance Tax Return within 9 months of Aunt Carmen's death. Mrs. Musetta has special software that computes the tax due. The computations and schedules of the return are not done by hand. You and Mimi sign the Pennsylvania Inheritance Tax Return at Mrs. Musetta's office. She then mails it to the Pennsylvania Department of Revenue, which does not yet have electronic filing for the inheritance tax return. At this time, an Inventory is filed with the Department of Court Records. This Inventory consists of assets in Aunt Carmen' s sole name and which pass under her Will.
Other tax returns that must be filed are the income tax return for the estate (1041) and Aunt Carmen's last lifetime return (1040). On the date of Aunt Carmen's death, her estate became an income tax paying entity and must file its own return. Her estate has its own taxpayer identification number, just as you have your own social security number. Mrs. Musetta applies for the taxpayer identification number (T1N) for the estate. She obtained the estate's TIN shortly after you probated Aunt Carmen's Will in order to open the estate checking account.
Aunt Carmen's estate, unlike Aunt Carmen, operates on a fiscal year. Suppose that Aunt Carmen died on August 7, 2011. Her estate's tax year would run from August 7, 2011 to July 31, 2012; and from August 1st to July 31st of each year thereafter. The income tax return for her estate would be due on November 15th of each year until the estate is closed.
After you file the Pennsylvania Inheritance Tax Return, months will go by until you hear from the Department of Revenue that Aunt Carmen's inheritance tax return was either accepted as filed or that the Department of Revenue changed it. This is called an appraisement. You and Mimi have sixty days to appeal any change made by the Department of Revenue on the inheritance tax return with which you disagree. Next, Part III: Making Distribution and Closing the Estate.