-- Death was in August, 2019.
- Estate is around $650,000 in cash, earning interest.
-- Income post-death to the estate is expected to be about $13,000. Most of the post-death income is due to distribution of a traditional IRA. The rest of the income is interest and possibly capital gains or losses from the sale of a house and automobile.
-- The will has a single beneficiary: A nationally-known non-profit charity.
-- I am making inquiries of local accounting firms to complete the Form 1041 and any state estate tax forms. I would rather do it myself, but my head is spinning trying to master the minutiae quickly. I have a duty to the beneficiary to make sure the tax forms are completed perfectly. Still, I want to be informed when I meet with the accountant.
-- I naively put down "calendar year" when applying for the EIN for the estate. Hence the IRS currently expects the estate's Form 1041 on April 15, 2020. To change this to "fiscal year," do I (or whoever prepares the Form 1041) have to do anything other than record the fiscal year dates in the space given at the top of Form 1041?
-- I am the executor. It would help my personal taxes greatly to take payment in 2019 for my hours worked to date. Is there any problem with paying myself (as executor) right now?
The answer probably depends on the laws of the state you are in.
Assuming you are executor (rather than trustee), in California any
execotor's fees have to be approved by the probate court. That may
be different in your state - you should talk to a local probate
lawyer about your options.
Instead if you are successor trustee, it is really up to you, as long
as what you pay yourself is reasonable under the circumstances. What
that would be can also vary depending on your professional
qualifications. For example in San Francisco, for someone who is
acting as trustee who is not a professional (i.e. lawyer or
accountant) the courts are approving fees of about $50 per hour. If
you are an accountant, a court could well approve your normal billing
rate. Again, you should talk to a local probate lawyer for guidance.
No one answered your first question. Regardless of what you entered on the SS-4, the tax year for the estate is established when the first return is filed. Assuming you can wrap everything up before July 31, 2020, a fiscal year ending 07/31 would be best -- a single return serving as both initial and final return.
Ira Smilovitz, EA
Thank you, Stuart, MTW and Ira.
-- Stuart, as interested, the attorney who wrote the will was emphatic that executors should take payment and said charging $25 to $35 per hour in 2019 is usual where I am. My state's probate code does not require court approval of the executrix's fee (unless the beneficiary challenges my expenses?). The probate code where I am does require the executor to provide a detailed accounting to devisees. This is in good shape. The devisee knows the accounting is coming, following the distribution(s) from the estate.
-- MTW, the attorney who wrote the will counseled me that the charity would seek a copy of the will from me. When the charity did, the attorney told me to tell them, in no uncertain terms, "No." My state's probate code allows this. My state's probate code does require executors to provide formal notice to all devisees. As soon as the charity received notice, and as predicted by the aforementioned attorney, the charity instantly asked for a copy of the will. I told the charity, 'No' and that I understand the probate code in my state supports my position. So I do not think I can ask for the charity's assistance on anything involving minutiae of the will or even much else and be complying with my fiduciary duty. The charity has been great otherwise: By the book but cordial, respectful to the deceased, and appreciative.
-- Perhaps as importantly, the will gives the executor (me) discretion on distributions of "the income to the estate," like interest on the cash sitting in the estate's money market account. So far the income to the estate appears to be low enough that the Form 1041 tax rate is about 10%. The estate will owe maybe a few hundred dollars to the federal government. I do not see a need for anything but maybe, bottom line, zeros to go on a Schedule K-1 (if a schedule k-1 is even needed?). Meaning the charity will not have to expend its labor and funds paying taxes on the small amount of "income to the estate." The estate will pay these taxes. (If anyone has any comments on the paragraph herein, I am all eyes.)
-- Ira, perfect. Thank you. Figuring out when to make the bulk of the distribution of the estate's assets; when to submit the Form 1041; the tax rules so I can understand what is going on if and when the CPA prepares the return; and related requirements had saturated my mind. I think I have a half-decent handle on the big picture at this point.