Ronald M. Martin died on March 4, 2020. Ronald was married to Sally B. Martin. Title to
Question:
Ronald M. Martin died on March 4, 2020. Ronald was married to Sally B. Martin. Title to the various estate assets is indicated below. Ronald’s separate property assets were subject to probate proceedings and his Will named Sally B. Martin as his personal representative. Sally will receive Ronald’s entire estate. Assume the life insurance is held in an irrevocable life insurance trust (ILIT), and therefore, not included in the taxable estate. Ronald doesn’t have a taxable estate, but his personal representative (Sally) would like to elect portability and transfer his applicable exclusion amount to Sally. Sally has not remarried since Ronald’s death.
A list of Ronald’s assets valued on the date of death is shown below.
Decedent’s Assets | ||||
Asset | Title to Asset* | Estimated FMV | 706 Amount | Probate Amount |
House | JT | $ 4,000,000 | $ 2,000,000 | $ 0 |
Cabin | JT | 950,000 | 475,000 | 0 |
Stock | S | 3,000,000 | 3,000,000 | 3,000,000 |
Life Insurance | ILIT | 1,500,000 | 0 | 0 |
Cash | S | 1,000 | 1,000 | 1,000 |
Bank Accounts & CDs | S | 1,250,000 | 1,250,000 | 1,250,000 |
Vehicles & Misc. Property | S | 157,400 | 157,400 | 157,400 |
IRA | S/B | 1,345,000 | 1,345,000 | 0 |
Accrued Dividends | S | 1,400 | 1,400 | 0 |
Accrued Interest | S | 700 | 700 | 0 |
Total | $ 12,205,500 | $ 8,230,500 | $ 4,410,500 | |
*Notes – JT = Joint tenancy with right of survivorship S = Separate Property S/B = Separate with designated beneficiary ILIT= Irrevocable Life Insurance Trust |
Income earned on probate assets after Ronald’s death as well as Income with Respect to a Decedent (IRD) are listed as follows:
Probate Estate Income | |
Source of Income | Amount |
Interest Income from Savings & CD Acct. | $ 6,800 |
Interest from Estate Bank Account | 200 |
Dividend Income | 1,400 |
Capital Gain Distributions | 800 |
Total | $ 9,200 |
No distributions were made from Ronald’s Estate during the taxable year (2020).
Estate Expenses | |
Expense Item | Amount |
Funeral Expenses | $ 7,800 |
Administration Expenses1 | 6,100 |
Credit Card Balances & other debt | 9,500 |
Total | $ 23,400 |
1Administration expenses can be deducted on Form 1041 or 706 but not both. They consisted of the following items: Attorney Fees $ 4,800 Tax Preparation Fees 1,000 Court Costs 300 Total $ 6,100 |
Ronald & Sally Martins’ Income Summary for 2020 | ||||
Income | Total | Ronald’s Final 1040 or Joint Return | Estate’s 1041 | Sally’s 1040 or Joint Return |
Dividends | $ 2,600 | $ 1,200 | $ 1,400 | $ 0 |
Capital Gain Distributions | 800 | 0 | 800 | 0 |
Savings Account & CD Interest | 12,800 | 6,000 | 6,800 | 0 |
IRA Distributions | 10,000 | 0 | 0 | 10,000 |
Pension | 37,000 | 37,000 | 0 | 0 |
Estate Bank Account Interest | 200 | 0 | 200 | 0 |
Totals | $ 63,400 | $ 44,200 | $ 9,200 | $ 10,000 |
Property | FMV | Tax Basis |
La Verne Residence | $ 4,000,000 | $ 2,500,000 |
Big Bear Lake Cabin | 950,000 | 700,000 |
Required Items ☹ -
- What options does Sally have regarding the filing of IRS Form 1040 for 2020? Can she file a joint return with Ronald for 2020 or does Ronald’s Estate need to file IRS Form 1040? Based upon the facts provided, prepare a simple Excel worksheet comparing Sally’s two filing options, i.e. file Joint Return with Ronald for 2020 vs. filing separate 1040s for both Ronald and Sally.
Probate Estate is required to fill IRS Form 1041, prepare IRS Form 1041 for the probate estate. Go to IRS website and fill-in Form 1041 and related forms and print.