Estate and Trust Administration is settling the estate of a decedent. The person responsible for handling the estate and/or trust has duties to the heirs, beneficiaries, and creditors of the estate.
Trust administration refers to the trustees' management of trust property under the trust document's terms and to benefit the beneficiaries after death. When a person dies, their financial affairs need to be settled, and their property distributed to their heirs. Although this process may sound straightforward, even easy, it is not. Trustees should work with an attorney to facilitate the process.
The Will or trust document establishes the rules for distributing the assets to the beneficiaries. If a person dies without a Will or trust, state law controls distributions.
In Maryland, the person responsible for administering a probate estate is called the personal representative. Trusts are administered by a trustee. In either case, the person charged with administering the estate must make sure any taxes are paid and other bona fide creditors satisfied., The possible death taxes for Maryland decedents are (1) the Maryland estate tax, (2) the federal estate tax, and (3) the Maryland inheritance tax. Other creditors may include credit card providers, medical providers, and mortgage lenders.
Trust administration begins with mandatory notice to all beneficiaries and the settlers' heirs. After receiving notice, the beneficiary has a certain number of days, depending on the jurisdiction, to file a trust contest. If no contest is filed within this period, the beneficiary may surrender his or her ability to file it.
If the trust holds real property, the next step is to bestow title in the successor trustee to ensure that the property will be handled according to the settlor's wishes. An affidavit and a certified copy of the death certificate should be recorded for each real property held in a living trust. This process transfers the property's title from the deceased settlor to the new trustees. A change-of-ownership form is typically recorded with the affidavit. If the trust transfers real property from parents or children by any means exempt from property tax reassessment, the trustee must complete the appropriate exemption form. An attorney is recommended to help prepare these documents.
Once the real property has been handled, the trustee will need to ascertain all other trust assets, such as bank and investment accounts, and transfer the title of those assets into the trustee's name as the successor trustee. The trustee must first obtain the trust's federal tax identification number so that any income earned from the trust's accounts is reported correctly to the IRS.
The successor trustee must pay the settlor's debts and satisfy the settlor's liabilities. Taxes can be complicated because both estate and income taxes may be owed if the estate is sufficiently large. To assess whether it is necessary to file a federal estate tax return for the settlor, the trustee needs to calculate the value of the decedent's estate. If the value exceeds the exemption amount, the trustee must file the federal estate tax return form. It is highly recommended to work with an attorney to determine whether a federal estate tax return is necessary.
Most jurisdictions require that the trustee keep a detailed accounting of the trust. This involves using trust funds to wind up the decedent's affairs, overseeing all trust activity, including deposits and distributions, and reviewing the document to determine the appropriate accounting method. The trustee should meet with an attorney at the outset of the administration process to assess the scope of his or her accounting obligations.
Once all assets have been collected, the debts paid, the tax returns filed, and liabilities fulfilled, the trustee should distribute the remaining trust assets. The trust document will outline how the trust assets should be dispersed among the beneficiaries.
What Is Probate?
The individual responsible for this process is called the fiduciary. If the fiduciary is named under a will, the fiduciary is called the personal representative (also known as an executor/executrix in other jurisdictions). If the fiduciary is appointed over a trust, the fiduciary is called a trustee.
What Is a Fiduciary?
The individual responsible for this process is called a fiduciary. If the fiduciary is named under a will, the fiduciary is called the personal representative (also commonly known as an executor/executrix in other jurisdictions). If the fiduciary is appointed over a trust, the fiduciary is called a trustee. "Being a fiduciary for a trust or estate is an honor, but it comes with serious obligations to those interested in the estate --- both beneficiaries and creditors.
Fiduciaries Main Obligation
The fiduciary's main obligation in estate administration is to preserve the deceased individual's assets. Therefore, it is important that a decedent's home and possessions are secured. Mail should be collected and processed. The decedent's papers should be gathered. Even papers that may not seem "relevant" can become useful to the administrative process. During this process, the fiduciary should keep detailed records so that all estate administration expenses, including funeral and burial costs, are properly paid from the estate or reimbursed to the individuals who incurred them.
Personal Representative Appointment
The Orphans' Court appoints the personal representative by granting that individual "letters of administration." If the decedent died with a will, the document names a personal representative, who is appointed by the court. The person named in the will as personal representative has the highest priority to be appointed as fiduciary of the estate under Maryland law. If there is no Will, or the will fails to name a personal representative who can serve, Maryland statutory law sets out the priority of those entitled to serve as a personal representative.
To open a probate estate, the person entitled to be named personal representative files a petition for probate with the Register of Wills in the county where the decedent had her domicile or had most of her property at the time of death. Once the letters of administration are issued, the personal representative has the authority to stand in the decedent's shoes to wind up the decedent's affairs.
Appointment of Trustees
Unlike appointing a personal representative in a probate proceeding, which requires oversight by the probate court, a trusteeship is controlled by a trust and is most often conducted without court involvement. One reason revocable trusts are used rather than wills are to avoid involvement of the probate process at death.
Maryland Court Probate Jurisdiction
The Maryland probate court (or Orphans' Court) does not have jurisdiction over non-probate arrangements. If a question arises about a person representative's conduct, the issue will go before the Orphans' Court; if a question arises about non-probate arrangements, those issues are resolved in the Circuit Court. The separate procedures governing the transmittal of probate and non-probate property at death can cause confusion, compounded by ambiguous messaging from some promoters of revocable trusts. Although a Revocable trust is a useful estate planning tool and can provide clients with great benefits, it does not automatically allow you to avoid estate or inheritance taxes.
Marshalling Assets
Once the personal representative has been appointed, the fiduciary can begin to marshal assets. Marshalling Assets involves identifying which assets are included in the fiduciary estate and retitling them in the fiduciary estate's name.
The personal representative is responsible for establishing the value of all assets and paying all lawful debts. In addition, the personal representative must file information about assets passing outside of the formal probate estate. One purpose of this reporting is to ensure inheritance taxes are properly collected.
The trustee for a revocable trust is responsible for the property under his control. Although the formal oversight performed by the Register of Will or Orphans' Court does not apply to a trust, the trustee must still account for the value of the property and the trust's financial activity. The Maryland Trust Act governs the duties of trustees and the rights of trust beneficiaries.
A fiduciary generally must satisfy the debts enforceable against a fiduciary estate. Under the probate system, creditors of the decedent have 6 months from the decedent's date of death to file a claim against the probate estate. Secured creditors, however, may rely on the mortgage or other security instrument for payment. It is now common practice for secured creditors to file a protective claim.
Maryland Tax Obligations
Fiduciary estate is subject to several taxes: 1) the Maryland inheritance tax, 2) the Maryland estate tax, 3) the federal estate tax, and 4) the Maryland and federal income taxes. If the estate is large enough to be taxable for federal tax purposes, the personal representative files a federal tax return and pays any tax due. This tax return must be submitted nine months after death. If the estate's assets earn interest during the period of administration, a federal and a Maryland income tax return for the fiduciary estate will likely be required. The personal representative is also charged with filing the decedent's last personal income tax return.
Maryland Estate and Inheritance Taxes
Potential estate or gift taxes must be addressed in any Maryland estate or trust administration after the testator's death. If the potential taxes apply, the personal representative of the probate estate must address them promptly. Failure to ensure that any tax due is paid may lead to a tax lien that will cloud the title of estate and trust assets.
A Maryland estate may be subject to three death taxes even if transferring property takes place in the probate court or outside the probate court: 1) the Maryland inheritance tax, 2) the Maryland estate tax, and 3) the federal estate tax.
Calculating Maryland Inheritance Taxes
Maryland is one of only a few states with an inheritance tax. The Maryland inheritance tax rate is 10% of the value of the gift. It is imposed only on collateral heirs, such as a niece, nephew, or friend. Heirs, such as parents, grandparents, children, stepchildren, children's spouses, brothers or sisters, are not currently taxed.
Because the inheritance tax is considered a tax on the privilege of receiving property, it is due from the recipient, unless otherwise directed by the governing document. If the governing document directs a specific bequest of $20,000 to a niece and the document pays the inheritance tax as defined by law, the niece receives $18,000, the net value of the gift after the inheritance tax.