Your last living parent has passed away and you are trying to come to terms with your new orphan status. It sucks and there is no way around it. It’s an awful part of life that everyone must go through at some point. And then you meet with an estate planning attorney, and they tell you that your parents had enough assets to trigger an estate tax in Massachusetts. Ugh, it’s kicking you while you are already down. There is no escaping death and taxes.
I hope this article will help you to prepare for the process of filing an estate tax return. Please note that this only covers the estate tax return. Typically, in these situations, there are other processes at the same time, such as probate and trust administration. This article is the bare bones of the estate tax return and doesn’t get into the probate process or the trust administration process.
The first step in the estate tax return process is to get the date of death values for all assets. Then we subtract the deductions and apply the Massachusetts formula to calculate how much is owed. The estate tax is due to the Massachusetts Department of Revenue nine months from the date of death. You can file for an extension, but the estimated payment is owed nine months from the date of death. The extension is only for the actual estate tax return. If you don’t pay on time, you can get hit with penalties and interest.
Date of Death Values
So how do we collect the date of death values? First, let’s look at real estate. If you are going to sell the real estate, you can use the purchase price as the date of death value. If you aren’t going to sell, you will need to get an official appraisal done for the value on the date of death. As a caveat, you will need to pay the estimated tax prior to selling because in Massachusetts there is an implied lien on real estate at the death of an owner of real estate.
When someone dies and owns an interest in real estate, you are required to file the death certificate at the registry of deeds, along with an affidavit stating whether there is a federal or state tax owed. Furthermore, if you pay the tax, you can request a release of lien for the real estate. If there is no tax owed, just an affidavit is sufficient to clear the title to the property. The affidavit and the release of lien (if there is a tax owed) will be filed at the registry of deeds. The affidavit, release of lien, and the death certificate are required to sell the property. If there is not enough cash to pay the tax, there are ways to pay the tax and get the release of lien within days of the closing. But don’t forget this needs to be done within nine months from the date of death!
Next are bank accounts. Your attorney will ask for bank statements covering the date of death. They will need all pages from the statement, not just the first page!
Investment and retirement accounts are a little trickier. If you work with a financial adviser, this is much easier. You will need to request a date of death valuation from the financial institution. This is much easier to obtain with an adviser!
Lastly, life insurance policies. You must also contact the institution issuing the death benefit and ask for IRS Form 712. This is a tax form that the life insurance institution is required to provide to the beneficiaries showing the date of value for the policy paid to the estate.
Once we collect all the date of death values for the estate, we collect the deductions. This includes final expenses incurred by the decedent prior to death, but paid after death, final medical bills, funeral expenses, attorneys’ fees, accountant fees, and income tax liabilities, among others.
Again, this is a basic overview, and we highly encourage you to consult with an attorney after your parents pass away. This will help you to focus on the grieving and healing and allow your attorney to handle the burdensome paperwork.
If you need help navigating the estate tax return process, contact us out at https://ladimerlaw.com/contact.
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Ladimer Law specializes in estate planning. We protect our clients, their heirs, and their assets by listening closely, knowing the law, and executing estate plans that fit and evolve.