Living Trust and form 706

[kib]

Hey all, want some opinion on this, thanks.   

My parents set up a revocable living trust.  Their net worth is approximately $4M.  Dad passed away last year, and my mother's new accountant, who seems to know nada about living trusts, is pushing for us to file a 706.

No one has actually inherited anything at this point because the assets are all under the trust umbrella - that was, as I understood it, the whole point of having a trust.  The only point of the 706 would be portability - in other words, to combine inheritance thresholds so that I could eventually inherit $10.8M tax free (rather than the 1 person limit of $5.4M).  I really don't see this as an issue, the net worth is well under $5.4M, that limit seems to rise every year and Trump's considering doing away with it altogether, and the estate is being spent down, not up.

The problems I see with filing are 1. I have been unable to find anyone in PA government who understands what a living trust is.  They hear "dead" and they say " estate tax".  IMO, sending a legal document outlining the value of the estate to the wrong person will create a horrid misunderstanding that's worth more than my life to sort out again.  2.  The accountant is now asking for paper documentation of the value of the estate at the DOD and also the valuation on the date when the accounts were closed.  They were only closed because the SS# on the trust assets had to change, not due to inheritance.  This all seems to ignore the existence of this damn trust in favor of the devil he knows.  I've been sort of compliant with his requests to this point but this is frankly more work than I want to do.

My mother is adamant about keeping this accountant, but she's totally incapable of doing the work involved in gathering all this data. If it doesn't get filed the only person who will suffer is me, I swear to god we do not owe any tax on the estate at this point.  My "plan" at this point is to let the 706 extension expire without doing anything else about it, but I wish I could get some better clarification / interpretation: am I being foolish to feel that filing this thing is not only an unnecessary nuisance but a potentially disastrous mistake?

[GizmoTX]

Get another opinion. What about the professional who created the trust?
We have a living trust & use an estate planning attorney for these issues. It's money well spent. You are correct -- the accountant is making what should be simple too difficult & potentially very costly.

[kib]

I'm so tired at this point.  They spent god-knows how many thousand dollars setting up this unnecessary trust with Henry Abts, then she spent another few thousand hiring an attorney who felt the whole trust was a ridiculously confusing boilerplate and basically gutted the original and turned it into who-knows-what when Dad died, now this accountant wants a few more thousand and doesn't seem to understand what a living trust is (as I say, basically pretending it doesn't exist).

I know, world's smallest violin, but the thought of trying to find someone else in a rural area 2000 miles from where I live after all this work with my mother not wanting to dirty her hands with nasty old money and her signature necessary to make any changes is making me think I should either turn it into cash and move to Mexico or just send the IRS a check for the entire estate. 

... basically I'm also dealing with her medical issues and running into the same astonishing, exasperating situation:  I've spent my life hearing horror stories about ordinary people in seemingly ordinary circumstances strangling on red tape,  and, eyes wide open, apparently I've somehow fallen into that exact situation.  A word to the wise, knowing the problem and avoiding it are not the same thing!

[GizmoTX]

Was the trust actually funded? If so, the assets are owned by the trust, managed by the trustee, done deal. While initially revocable, it becomes irrevocable upon the first person's death. Who is the trustee?

It sounds as if it is unfunded, which is why you are dealing with all this aggravation & expense. Consult an estate attorney where you live or in a big city in the state where your mother lives, but make sure you are using the latest controlling documents.

[FinancialDad.org]

I agree with @GizmoTX. 

the thought of trying to find someone else in a rural area 2000 miles from where I live after all this work with my mother..

Be sure to get someone from your Mom's/Dad's home state (Pennsylvania?).  That may make it easier to find someone (giving you a larger pool of reputable people to pick from..Philly? Pittsburgh?) and you'll still be confident that the determination will account for any state-specific law nuances.

A hassle to be sure, but worth sorting out now if you (and Mom) have the strength.

Luck. 

[CareCPA]

Going through a similar, but smaller, issue with my wife's grandfather. Someone had talked him into a living revocable trust in the early 2000's (presumably for Medicare asset preservation), but it was pointless as he never would have gone into a home, and had nothing of major value to shield from inheritance/estate tax. The assets don't seem to have been properly transferred, as all the annuities/life insurances were still in his personal name. It really put me off to trusts in general unless you have an actual need for them.

If the living revocable trust is joint, there shouldn't be a 706 needed unless you want the portability of the exemption. Since the extension was filed. they will be looking for a return to be filed, so you can expect a notice if you don't file. It should be an easy response to take care of.

Please note, I do not have all the details of your trust, this is just a general answer.

[PepperPeter]

I'm a trusts and estates paralegal, and spend a ton of time preparing estate tax returns.  You've made some inaccurate assumptions and gotten some not entirely accurate info here.

Hey all, want some opinion on this, thanks.   

My parents set up a revocable living trust.  Their net worth is approximately $4M.  Dad passed away last year, and my mother's new accountant, who seems to know nada about living trusts, is pushing for us to file a 706.

No one has actually inherited anything at this point because the assets are all under the trust umbrella - that was, as I understood it, the whole point of having a trust. No, many people set up trusts to avoid probate or for a number of other reasons.  Once your dad died, the beneficiary (I assume your mom) did "inherit" the assets - in a trust for her benefit.  The only point of the 706 would be portability - in other words, to combine inheritance thresholds so that I could eventually inherit $10.8M tax free (rather than the 1 person limit of $5.4M).  I really don't see this as an issue, the net worth is well under $5.4M, that limit seems to rise every year [the exemption is $5m, adjusted for inflation on an annual basis] and Trump's considering doing away with it altogether, and the estate is being spent down, not up. Honestly, NO ONE has a clue what is going to happen to the estate tax.  You can't make an educated guess because there isn't an educated guess to make at this point.

The problems I see with filing are 1. I have been unable to find anyone in PA government who understands what a living trust is.  They hear "dead" and they say " estate tax". Does PA have a state estate tax? IMO, sending a legal document outlining the value of the estate to the wrong person will create a horrid misunderstanding that's worth more than my life to sort out again.There may be filing requirements you are unaware of in your state.  2.  The accountant is now asking for paper documentation of the value of the estate at the DOD and also the valuation on the date when the accounts were closed.  They were only closed because the SS# on the trust assets had to change, not due to inheritance.  This all seems to ignore the existence of this damn trust in favor of the devil he knows.  I've been sort of compliant with his requests to this point but this is frankly more work than I want to do. Every single asset a decedent owned at death must be reported on an estate tax return, no matter how it was titled - in a trust, jointly, individually, etc.  Inheritance is irrelevant.

My mother is adamant about keeping this accountant, but she's totally incapable of doing the work involved in gathering all this data. If it doesn't get filed the only person who will suffer is me, I swear to god we do not owe any tax on the estate at this point.  My "plan" at this point is to let the 706 extension expire without doing anything else about it, but I wish I could get some better clarification / interpretation: am I being foolish to feel that filing this thing is not only an unnecessary nuisance [Yes] but a potentially disastrous mistake? I don't understand what your specific concern is here.  If your mom doesn't need the portability, she doesn't use it.

[/size]

I understand you're dealing with a lot right now, but this sounds like a potential cut off your nose to spite your face situation.  You are making a lot of assumptions about things you don't know enough about.  I don't know the rules in PA so I can't help you there, but giving up portability is no small matter.  That's a lot exemption to give up right now, particularly when the future of the estate tax is in flux.  They could lower the exemption to $1m (unlikely, but who knows?), or they could abolish it altogether.  It's just too risky to endorse you giving up millions of dollars in tax-free exemption because you don't want to call a few financial institutions for date of death values. 

You need to see a TE attorney and get their advice on filing.  Your accountant may be giving you great advice but based on what you've shared here you would have no way of knowing that.

[CareCPA]

To clarify, PA has an inheritance tax, not an estate tax.
You would be looking at the form PA REV-1500 for a starting point.

[Drifterrider]

A consideration.  The OP stated revocable trust which is not the same and does not afford the same asset protection as an irrevocable trust.

A revocable trust does not protect assets from Medicaid and does not necessarily protect the assets from certain other claims.