Florida
Trust Administration
TRUST ADMINISTRATION -- When the Grantor
(the person who created the trust) dies, certain steps must
be taken to comply with Florida law and to comply with the
terms and conditions of the trust to change title to assets,
transfer assets, pay debts and expenses, file tax returns,
if necessary, for the trust and to otherwise distribute those
assets that were registered or titled to the trust to the
beneficiaries. This is called "trust administration".
The complexity of the administration and legal fees associated
with trust administration depends on the number and type of
assets, their total value, whether the trust includes tax
planning provisions, and whether it is necessary to file a
Federal Estate Tax Return, form 706. A 706 must be filed if
the value of the Grantor's estate (every asset in which the
Grantor has an ownership regardless of the beneficiary) reaches
a certain amount. The applicable exclusion amount or the amount
for which no tax is paid is $1.5 million in 2004 and 2005,
$2 million in 2006, 2007, and 2008, and $3.5 million in 2009.
However, Congress increases and decreases the exclusion amount
and consistently takes up the issue of presently eliminating
the estate tax even though only about two percent of estates
actually pay the tax. Income tax returns also must be filed
for the trust estate.
If a federal estate tax return is due, then a copy of it
should be filed with the Florida Department of Revenue. If
no federal return is due, then an affidavit of no estate tax
due should be recorded against the legal description of any
Florida real estate. This is done to ensure clear title when
the property is eventually sold.
With trust administration many times a credit shelter trust
must be funded. The purpose of a credit shelter trust is to
reduce or eliminate the federal estate tax. To fund the credit
shelter trust, the surviving spouse or heirs must transfer
certain assets to the trust. This credit shelter trust is
an irrevocable trust and the surviving spouse or heirs will
have to file additional income tax returns.
If the surviving spouse or heir does not administer the trust
after the death of the first spouse or parent, the credit
shelter trust will not exist and will therefore provide no
tax reduction benefit. As a result, higher estate taxes will
be paid. The credit shelter trust must be properly funded,
and other procedures must be followed, such as filing income
tax returns, or the trust will be included in the surviving
spouse's estate for federal estate tax purposes, raising the
federal estate taxes for the estate.
FIDUCIARY -- In Florida, the executor of
a Last Will and Testament is referred to as a personal representative.
A personal representative is responsible for the administration
of a decedent's probate estate. A trustee is the fiduciary
responsible for implementing the terms of a Trust. According
to the Internal Revenue Service, an executor is the person
responsible for preparing and filing the United States Estate
Tax Return and Fiduciary Tax returns. Regardless of the terminology
used and the specific duties, a trustee, executor and/or personal
representative is responsible for the administration of a
decedent's estate.
ESTATE VALUATION -- To value a decedent's
gross estate, we must determine the nature and the fair market
value of the assets owned at death and/or on the alternate
valuation date which is six months from date of death. The
Internal Revenue Code broadly defines someone's assets, so
everything from clothing to stock portfolios is includible.
The obvious assets are cash accounts, stocks, bonds, limited
partnerships, and real estate. The less obvious assets are
life insurance proceeds (regardless of the beneficiary, if
the policy was owned by the decedent), joint accounts, and
tangible personal property.
INCOME TAX REPORTING
Federal - A final 1040 for the decedent is due for the year
of death. Also, a form 1041 will be filed for the decedent's
trust estate which will be due for the period of the date
of death to the end of the year, and then annually thereafter
until the close of the trust estate. Ongoing 1041s will be
required for Marital and Credit Shelter Trusts, if created
under the terms of the decedent's revocable trust.
Florida - There is no Florida income tax but the executor
of the decedent's estate should consult with an accountant
to determine whether an intangibles tax is due.
TIME FRAME -- Generally, when a federal
estate tax return is due, the tax reporting in connection
with the estate administration process takes approximately
two years from date of death. If no federal return is due,
the time frame is greatly reduced.
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