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Tax Matters
Upon the death of a person, there are
important tax matters that the survivors
must address. The state and federal
governments will tax the decedent’s estate
based on its value at the time of death.
The property held in the estate will be
collected and appraised to determine this
value. There are two basic ways in which
taxes are paid: 1)
the personal representative pays the taxes
directly from the estate so that each
beneficiary receives property without having
to pay the taxes on it, or 2) each
beneficiary must pay the taxes on any
property he or she receives based on the
fair market value of the gift.
Tax matters should be addressed as
soon as possible to avoid problems in the
administration of the estate. |
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Payment of Claims and Administration
Expenses Payment of Claims
After a settlor dies, any person to whom the settlor owed money (a creditor)
may seek trust assets to satisfy a claim
against the settlor. The trustee of a
revocable living trust may use one of
several methods to address creditor claims,
but which method to use, if any, is within
the trustee’s discretion.
If the trustee does not address creditor
claims at all, then each beneficiary will be
liable for a share of the creditor claims in
proportion to the value of the trust
property received by the beneficiary.
Administration Expenses
The administration of a trust means the trustee must have easy access to
funds. The trustee, trustee’s attorney, tax
adviser, and other professionals are all
entitled to compensation for their services
to the trust.
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In most
trusts, the trustee has the power to use trust assets to help pay these persons,
including himself. There are a number of ways in which the trust may call for
payment of such persons.
The trust document may specify a certain dollar amount
of compensation, state that the compensation should be “reasonable,” or even
provide for no compensation at all. Payment of administration expenses
practically necessitates the creation of a trust checking account.
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