Estate Tax Question

[GTS1101]

A client called today and the person he married three months ago has an interesting tax estate issue. Her daughter died back in 2007. There was no will, no trust, and no estate. She had literally nothing. No assets and no tax return was required after the final tax return in the year of death. The daughter was in college and she prepaid her tuition. Because she died she was not able to use it all. The school has sent a check to the mother for 10,000 made out to the estate of the daughter reimbursing the mom for the prepaid tuition not used.

The mom called the IRS and got an EIN number. Any suggestions on how she cashes this check since it is made out to the estate of the daughter? Does she need a lawyer? Or is there a cheaper legal way for her to become the executor without going through a lawyer?

And my assumption would be that there is no taxes on this money. It is not income. I see it as an inheritance. Anybody seen a situation like this before. Would I still have to file form 1041 as this is not taxable income? It is reimbursing income that was already taxed used for tuition prepaid to the college.

GTS1101

[JohnH]

Many states have an expedited procedure for small estates. In NC for example, I believe it comes into play if the estate is less than $20,000 - the personal representative simply applies to the Clerk of Court, who oversees administration of the small estate under an "Affidavit for/of Collection" proceeding. Your state may have similar procedures and/or limits.

[Burke]

The first thing I would do is contact the issuer of the check and explain the situation. They may re-issue the check to her upon the completion of certain paperwork. It is not taxable income, no 1041 is necessary. Alternatively, her local bank may allow her to endorse the check and deposit it to her account. The smaller the bank, and her relationship with them, will determine if this can be accomplished without the legal document. If not, she certainly can open an estate account with the certification letter from the court and the EIN, deposit the check as written, and then withdraw it. She does not need a lawyer. She can go down to the Clerk of Court and take care of this with a copy of her daughter's death certificate.