Help made this job go quicker

Thanks to my husband who helped me calculate date of death values - and alternate valuations this afternoon. I've (re)learned that he can be a really nice guy. Together, it took the two of us about four hours. For stocks, you need to calculate the value by averaging the high and low price for the date of death. You do this for the actual date of death and six months later. For mutual funds, there's nothing to calculate. You look for the sale price in historical data. We used yahoo finance to calculate our prices.

Because I'm doing this for both my parents (who shared most of their assets), it was double the work. Sort of. I had to calculate for the date of my mother's death, the date of my father's death and then my mother's alternate valuation. It's too soon to calculate my dad's alternate valuation because he hasn't been gone six months yet. That just means in another few weeks, I'll have to do it all over again.

Another thing I (re)learned today, and something I've already shared here, is that I can see what I've learned and haven't learned by trying to explain something to someone else. Today I tried to explain to my brother all that I thought I learned from an attorney I met with in New York in December. I took my notes from that day that I hadn't looked at since that day. And then I typed them up all up in an email to my brother. I was happily surprised at how few times I had to write "at least I think that's what he meant" or "I think that's what he said."

One thing that I learned from the attorney is what it means to settle an estate. How do I know if the estate is settled? He explained that the estate is settled when the assets are all collected, the estate taxes are paid and that we get a closing letter from both the IRS and from New York State saying that no more taxes are due. At that point, there needs to be a formal or informal accounting of what we have spent and what's left. The beneficiaries give me a receipt and release once I give them their assets. That releases me from further obligation.

The question came up when I met with the attorney about how to split stocks amongst 5 different people. He said that the cleanest way is to liquidate everything right before distribution. Then it can be easily divided. Leaving stocks to distribute "in kind" (as stocks) gets messy with fractional amounts of shares. I do wonder, though, about the tax consequences of liquidating everything before distribution. We will acquire the cost basis of the date of death valuation of Dad, but again, really need to look at the tax consequences of doing so as we get closer to this point. Right now, it seems like a long way off.

Something else I learned from this attorney is that because Dad never inherited Mom's IRA and it's gone into her estate, it's technically no longer an IRA and it's simply stocks (that will probably need to be liquidated) to distribute out of her estate. This will be the only asset to pass directly from Mom to her beneficiaries (my brother and I). So no inherited IRA from Mom. This is not exactly what I learned from the institution where Mom held her IRA (and that I shared with you earlier last month).

I already have the things I'd like to learn about tomorrow on my "to do" list. I had hoped to file the paperwork to get my dad's death benefit from his union but I learned that can't do that without the paperwork that says that I'm the executor of the estate and that won't happen until the attorney I've hired for probate has done his thing.

Instead, I'll learn about setting up inherited IRAs from two different institutions. And I plan to learn about transferring stock from Computershare... and where it actually has to get transferred to. That, to me right now, is a big mystery.

And now back to reading my executor and trustee book! Lots more to learn.

An 1137 spotting... on the plate

Lesson learned today: I finally figured out the real point of alternate valuations of assets. I will explain.

Let's supposed someone dies on June 15. That person's estate tax return and tax payment is due on March 15, 9 months later. Let's suppose in July or August... or maybe even October, the stock market tanks. A good part of the estate is in stocks. If the stocks are valued at the actual date of the death, June 15th, they might have been really high. Maybe they were $100,000. But by October, the market is at a new low and those stocks are now worth only $73,980. That's a big hit. So the IRS is kind of nice. (Well, not really. More on that in a minute.)

The IRS says that instead of using the value on the date of death, the value on the date that is 6 months out, in this case, December 15th can also be considered. The executor than elects to use the lower value when calculating the value of the stock portion of the estate. The estate taxes would then be paid on the lower value. And taxes on a diminished portfolio would be lower. It's almost like the IRS doesn't want to kick you, the beneficiary, when you're down.

Okay, so the IRS isn't really that nice. The beneficiaries now receive the stocks with the cost basis being the lower value. So once the stocks get back to the higher value on date of death - or even higher - the capital gains to the beneficiary will be higher and the beneficiaries will owe more capital gains taxes than they would have had the higher value been taken when filing the estate tax. Remember, short-term capital gains are taxed at your normal rate, whatever that might be. Long-term capital gains are taxed at a lower rate.

I hope this makes some sense to you. I understand that I was able to make an election. And I've been frustrated trying to get date of death values (and alternate valuations) on all my parents' assets for the past month or so. It's not easy. Now I totally understand why. I'm just not sure I gave you the greatest explanation.

Date of death valuations for stocks are the mathematical average of the stock price between highest and lowest on the date of death. For funds, the value is the amount the fund could have been sold for on the day of the death.

xoxoxoxoxoxoxoxoxoxox

For the first time since either one of my parents died, I saw 1137 on a license plate. I was really caught short. It's creepy enough when I see 11:37 on the clock, which happens often enough. I just don't know what to make of it. It's not the affirmation of things being well that it was before. Does it, in fact, mean anything? I stared at it, I had enough presence of mind to pull out my camera and photograph it. And then I was left to wonder.

Recap of today's lesson: If a decedent left investments as assets in the estate (whether in a probate account or within a trust), the assets will be valued at the date of death and then again exactly 6 months later. The executor can elect which value to use for the estate. Normally, the lower value would be elected. Estate taxes are paid on the lower value. The beneficiaries assume the cost basis of the lower value. So if the investments ever return to their original levels, as soon as the beneficiaries sell, they have a larger gain and pay higher capital gains taxes.

If you don't get it, ask! Ask me. Ask your attorney. Ask your lawyer. Read about it in a book.