Chapter Nineteen

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Chapter Nineteen
Accounting for Estates and Trusts
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Estate Accounting
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Estate Accounting

• Laws governing wills and estates are called
  probate laws.
• Each state establishes its own laws of descent
  and laws of distribution.
• 50 of states have adopted the Uniform Probate
  Code.

• Probate Laws generally have 3 purposes
• Gather and preserve all of the decedents
  property.
• Carry out an orderly and fair settlement of all
  debts.
• Discover and carrying out the decedents
  intentions for remaining property at death.

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Administration of the Estate
Probate Process
1. The will is presented to the court.
3. An executor or administrator is assigned.
Entitled to compensation.
2. The court rules on the wills validity.
4. The terms of the will are carried out.
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Executor Responsibilities

• Take possession of all decedents assets and
  complete an inventory of the property.
• Discover claims against the estate and settle
  those claims.
• File estate tax returns.
• Federal and State
• Distribute property
• Make a full accounting to the probate court.

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Property Included in the Estate
Stocks and Bonds
Accrued Interest
CAH
Dividends
Valuables
Investments in Businesses
Unpaid Wages
Accrued Rents Royalties
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Discovery of Claims Against the Estate

• Order of priority
• Expenses of administering the estate.
• Funeral and medical expenses.
• Debts and taxes.
• All other claims.

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Discovery of Claims Against the Estate

• Types of Gifts
• Specific legacy.
• Demonstrative legacy.
• General legacy.
• Residual Legacy.

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Discovery of Claims Against the Estate

• Order of abatement in the event of insufficient
  funds to pay debts and expenses
• Specific legacies.
• Demonstrative legacies.
• General legacies.
• Residual legacies.

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Estate and Inheritance Taxes
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Federal Estate Taxes
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Federal Estate Tax Rates
The rates below were established by Congress in
the Economic Growth and Tax Relief Reconciliation
Act of 2001.
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Other Estate Issues

• State Inheritance Taxes
• Often, recipients of property, must contribute
  cash to the estate to cover the applicable taxes.
• Estate Income Taxes
• Any income from the estate assets is taxable to
  the estate.
• An exemption of 600 is provided.
• Separate tax rates are available for estate
  income.

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The Distinction Between Income and Principal

• The recipient of estate income is called the
  income beneficiary.
• The recipient of the estate principal is called
  the remainderman.
• How income is to be determined should be defined
  by the decedent in the will.

• Income of the Estate often includes
• Recurring taxes such as property taxes.
• Ordinary repair expense.
• Utility expense.
• Insurance expense.
• Other expenses necessary for the management and
  preservation of the estate.

• Principal of the Estate often includes
• Life insurance proceeds.
• Dividends.
• Debts.
• Funeral expenses.
• Gains/Losses from sale of assets.
• Homestead and family expenses.

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Recording the Transactions of an Estate
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Charge and Discharge Statement

• A periodic statement disclosing progress in
  settling the estate.
• Separate statements are required for income and
  principal.
• Each statement reports
• Assets under the control of the executor.
• Disbursements made to date.
• Any property still remaining.

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Lets look at accounting for trusts.
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Accounting for a Trust
A TRUST IS the conveyance of assets to a
fiduciary who manages the assets according to the
stipulated instructions.
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Accounting for a Trust
A TRUST IS the conveyance of assets to a
fiduciary who manages the assets according to the
stipulated instructions.
VS.
A trust established while the trustor is still
alive.
A trust established by the will after the
trustors death.
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Different Types of Trusts

• Revocable Living Trust
• Credit Shelter Trust
• Qualified Terminable Interest Property Trust
• Charitable Remainder Trust
• Charitable Lead Trust

• Grantor Retained Annuity Trust
• Minors Section 2503(c) Trust
• Spendthrift Trust
• Irrevocable Life Insurance Trust
• Qualified Personal Resident Trust

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Record-Keeping for a Trust Fund
Usually, the cash basis is used to record trust
fund transactions.

• Adjustments to the Trusts Principal
• Investing costs and commissions.
• Income taxes on gains added to the principal.
• Costs of preparing property for sale.

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Record-Keeping for a Trust Fund
Usually, the cash basis is used to record trust
fund transactions.

• Adjustments to the Trusts Income
• Rent expense.
• Lease cancellation fees.
• Interest expense.
• Insurance expense.
• Income taxes on trust income.

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End of Chapter 19
Bob, if anything happens to you, can I have your
golf clubs?
Wow! Sounds like Bobs trip could be dangerous!