1976, August, Pg. 1090. Income Taxes and the Small Estate.

5 Colo.Law. 1090

Colorado Lawyer

1976.

1976, August, Pg. 1090.

Income Taxes and the Small Estate

1090Vol. 5, No. 8, Pg. 1090Income Taxes and the Small EstateA rambling excursion into Realms of Gold that are easy to miss when the estate is "too small to have tax problems."

I.

Your client died last winter. The will you drew for her divides the estate in thirds among her son and two daughters, naming the son personal representative. There wasn't a whole lot---a $15,000 equity in the house, 25 shares of A.T.&T., 30 shares of Exxon, $2,500 in savings, and $450 in a checking account, plus car, household and personal effects---less than $24,000.

You had the will admitted informally, opted for non-supervised administration, and saw to it that the son paid up the delinquent interest and taxes on the house (about $500), paid income taxes to date of death, funeral expenses and debts, and filed the inheritance tax application. The son took a $300 personal representative fee and your charge is a modest $1,000. The telephone stock was sold at a small loss. You are about to close the estate, but pause to ask yourself some prudent questions. Let's see. . . is there anything else?

Debts and Taxes all paid? Right!Inheritance Tax settled? Right!No Estate Tax? Right!Estate income taxes? Under $600 of income, so no tax?(fn1) Right!And so no need to file estate income tax returns? Wrong!Why wrong? Because of the excess deductions distribution.(fn2) If an estate has deductions in its final return which it can't use, the residuary beneficiaries can claim them.

You received $272.25 of income during the nine months, offset in part by a $134 long-term capital loss on sale of the telephone stock. You also paid $500 for property taxes and interest, $1,300 of fees, and $100 in court and appraisal costs, all qualifying as deductions(fn3)---a total of $1,900 in ordinary deductions, as well as the $134 long-term capital loss. Hence, there is a net of $1,627.75 in available excess deductions distribution. This divides out to $542.58 apiece for each of the three devisees. The $134 long-term capital loss is also distributable, to be offset against the beneficiaries capital gains or fifty cents on the dollar against ordinary income. If they itemize deductions and are in the 28 percent bracket for the year, they will collectively save almost...