unequal amounts of mother's trust passing to siblings

Dear Len & Rosie,

My mother’s trust gives my brother and I unequal amounts.  I get 70% and my brother gets only 20%.  A grandchild will inherit the remaining.  I am my mother’s successor trustee. When she dies, can I give my brother a bigger share without any consequences?

Jo

Dear Jo,

There is one simple rule to remember. As trustee, you can give away your money, but you can’t give away other people’s money. So, you can gift to your brother if you want to, but it has to come out of your share. Your mother’s grandchild must get his or her full share of the trust. Otherwise, you are opening yourself to a lawsuit that you would surely lose.

As for gifting money to your brother, there are a few factors to consider. First, there is an annual Gift Tax deduction of $15,000 per recipient. This means you can give $15,000 to as many people as you want to, each and every year, without consequence.

If you give your brother more than $15,000, then you are required to file a Federal Gift Tax Return (IRS Form 709). However, you won’t have to write out a check to the IRS. The gift tax comes out of your Unified Credit, which pays the Gift and Estate Tax on the first $11,200,000 you give away during your lifetime or pass on after your death. Unless the value of your assets is approaching that amount, you will not have any problems.

Your brother will not have to pay income tax on the gift either. It’s not income. He didn’t earn it. However, there would be income tax due if you give him certain tax deferred assets such as United States Savings Bonds or annuities that he then cashes in after he receives them from you.

There is one twist you should look out for if your mother leaves you a larger portion of her tax-deferred retirement accounts than your brother. When you draw from a tax-deferred retirement account such as an IRA, 401(k) or 403(b), you have to pay the income tax on that money, even if you turn around and give it to your brother.

If your mother is not incapacitated, you may want to talk to her. Maybe she can update her trust and beneficiary designations to leave your brother a larger share.  This way, you can avoid the gift tax issue altogether.

A correction: In a recent column we mistated the amount of assets that may pass free of the Federal Estate Tax in 2018.  The correct amount is $11,200,000.

Len & Rosie

What is an executor, what does the job pay, and what can I do if I don’t want to do it?

Dear Len & Rosie,

A good friend of mine died last month, and I have just discovered that he named me as his executor. I haven’t the faintest idea what I’m supposed to do. I’m not an attorney, and I don’t know if I want to devote the time to it. I’m not even sure that I want to be executor. My friend is survived by his four adult children, two sons and two daughters. They have never gotten along with each other. I just know that they are going to start fighting over their father’s estate, which is worth over $500,000. Just last week they were arguing over who would get his stereo and television. What is an executor, what does the job pay, and what can I do if I don’t want to do it?

Edward

Dear Edward,

An “executor” is a person nominated in a will, and appointed by the court, to oversee the distribution of a decedent’s probate estate. The good news is that if you take the job, you get paid, and paid well. The probate executor (or administrator) gets paid the same fee as the probate attorney. In your case, a $13,000 statutory fee for an estate with a gross value (before debts are subtracted) of $500,000. If the estate is worth $1,000,000, you’ll get paid $23,000.

It will be your responsibility to gather the assets of your friend’s estate. You will need to publish a notice to creditors to ensure that those your friend owed money to shall have the opportunity to present their claims for payment. All of the assets in the estate have to be inventoried, itemized, and accounted for before the court will order you to distribute the estate in the manner provided for by your friend’s will. Your friend may have a final income tax return due next April 15th. The estate will also have to file an income tax return if it earns more than $600 of income during the course of administration.

Strangely enough, all of this is more or less routine, and most of the heavy living will be done by the lawyer you hire to probate the estate. The difficulty will come in if your friend’s children fight with one another over every little thing. Your friends possessions of sentimental value should be divided equitably among his children and, hopefully, they can do this on their own. If they are fighting over  the television, there’s an easy solution: Sell it to the highest bidder, or put it up for sale in an estate sale.

If you don’t like the idea of having to put up with your friend’s children, you can simply refuse to do it. They can’t force you to be the executor. If you feel your friend’s children are going to fight over the estate like dogs struggling over a bone, then the $13,000 fee may not be worth the hassle. If you do not want the job, the next executor named in the will should do it, or your friend’s children will fight for the privilege of being executor.

Len & Rosie