Form 1041 Due. Executor Dead!

[ATSMAN]

I have a situation that has gone haywire because of family infighting. Executor (bother of the deceased) asked me to put the 2017 1041 on extension because he was going to have some surgery. I just found out that he (executor) died at the end of June from medical complications. There was no contingent executor and now the rest of the family members are challenging the will and other actions taken by the deceased executor. One family member confided in me that the whole thing stinks and heading to court and no one knows who will be the executor of the estate or when it will be appointed. Estate has rental income properties.

What are my options to file the 1041 that was on extension assuming a replacement executor is not named?

[Burke]

Not your problem. Someone else can go to the clerk of court and be named executor or personal administrator, although a family member may not want to. If they are "going to court to challenge the will," there will undoubtedly be attorneys involved. I would simply notify each of the principals/heirs involved via letter of the situation involving the tax return's status, when the extension deadline is, and have them contact you when an official representative has been appointed to act on the estate's behalf.

[Rapid Robert]

Whoever you communicate with, be sure to tell them the consequences of not filing Form 1041 on time. Perhaps more important than filing timely is to pay any tax due timely, do you have an idea what will be on the return? I don't think anyone has to have any special legal status in order to make a tax payment, assuming they can get their hands on the funds. Since you filed an extension, there must already be an EIN, so that helps.

[ATSMAN]

When the executor was alive he paid almost 90% of the tax due with the extension. I believe the estate owes around $800 in Federal and less tan $200 in state balance due at this time. Because of the dysfunction in the family, no one wants to touch this fearing it may have legal impact. One of the nephews is also my client so I am hearing bits and pieces. I am trying to impress upon him to let the family members know that there will be penalties and interest that IRS and state may assess if they do not act to file this return by the extension deadline. I think the issue right now is no one wants to pay the balance due out of their own money. I think I may suggest they take up a a collection from all family members who has a chance of inheriting anything from the estate.

The deceased executor (brother of the owner of the rental units) also doubled as her handyman and rental agent. I believe he took a portion of the rent collected as his cut for doing all the work. Obviously everything was verbal between the two. There is a will of some sorts that gives the two rental houses to the deceased executor and I believe the other family members are challenging that.

[JohnH]

You can do what you like, but I would not make any suggestions about how they deal with the remaining liability. I'd be in CYA mode from A to Z in this matter. Just advise them of the figures and let them sort it out. I'd be SURE to emphasize that all my figures for extension and final are preliminary and based only on the limited information I was provided.

If you're right about the final balance and if they can't stop squabbling long enough to handle this simple matter, the penalties & interest won't be that much. If they get into a legal squabble, it's probably likely one or more lawyers will want to get someone not involved in the initial phases to handle the estate returns. Who knows how they might mess up what you've already accomplished. In any event, if a surprise pops up you just want to be sure you're completely out of the finger-pointing loop.

I'm sure you already know all this, but it never hurts to have a reminder or two.

[ATSMAN]

Thanks JohnH for your concern. In this business you always have to CYA! I said that in jest about taking up a collection BUT I will make it clear that there is a tax liability on the estate and they can avoid the penalties and interest and keep more of the estate assets for the beneficiaries. I think the problem is getting someone in the family to take charge of this matter because all of them are pointing fingers at each other. I am going to mail a letter in the name of the estate to the last known address with my concern if they don't take any action by early September.

I had a similar situation 2 years back with a divorcing couple because they could not decide if they should file MFS or MFJ because they were at each others throat. Finally the lawyers got together and asked me to file MFJ!

[Burke]

. I am going to mail a letter in the name of the estate to the last known address with my concern if they don't take any action by early September.

John H gave good advice in his post. I suggested mailing your letter to all the heirs/beneficiaries as you should have had their information on SS-4's for the K-1's. Also, if you have some sort of idea how much the estate may have owed, you must have some information on income and expenses in your files. Any new executor and/or attorney will want that information and should be in touch with you eventually. In any event, I would certainly enclose a bill for any services and/or tax work you have done to date with your letter.

[ATSMAN]

Yesterday I happened to run into the nephew at a gas station and I reminded him to tell his family that the return MUST be filed so he shoud talk to him family about the urgency of this matter. I will send a written letter (certified) in September if I don't see any movement.

Based on the information given to me by the dead executor I have the return ready to be filed unless the new executor changes it significantly. Yes they will have to pay for any changes, I am not working for free.

[Burke]

The deceased executor (brother of the owner of the rental units) also doubled as her handyman and rental agent. I believe he took a portion of the rent collected as his cut for doing all the work. Obviously everything was verbal between the two. There is a will of some sorts that gives the two rental houses to the deceased executor and I believe the other family members are challenging that.

I had somewhat of the same situation where this type of verbal arrangement was not accounted for on the tax returns prior to my taking it over. But after that, we took the amount kept by the family member who was taking care of the properties, as a rental expense on the owner's return against gross rents, and claimed it as self-employment income on the "managing agent's" return subject to SE taxes. Since I was doing both returns, it was not really a problem. The owner also began reporting via a 1099MISC to the recipient of the amount he kept for his services.

On the estate 1041 return, it is always a good idea to have a copy of any will. I never do one without it. The executor would have had to probate it when he qualified. You would be amazed at some of the things executors do that are contrary to the will.

[taxea]

Doesn't anyone have confidentiality concerns? I would not provide info on the returns to anyone, in this case, who has not been appointed PR/trustee or provides a notary signed document accepting PR/trustee responsibilities.

[ATSMAN]

Doesn't anyone have confidentiality concerns? I would not provide info on the returns to anyone, in this case, who has not been appointed PR/trustee or provides a notary signed document accepting PR/trustee responsibilities.

I have not discussed the details of the 1041 (income, expenses) with the Nephew. My conversation has been limited to requesting him to get his family to take some action to get a successor trustee/excec. appointed ASAP because taxes are due and failing that the estate will be subject to penalty and interest.

[Burke]

Any newly appointed executor/administrator may post a secured bond with the court on the estate to protect him/her from liability in its administration. Under the circumstances, this should be secured by a bonding company insurance policy and paid for out of the estate assets.

[ATSMAN]

Any newly appointed executor/administrator may post a secured bond with the court on the estate to protect him/her from liability in its administration. Under the circumstances, this should be secured by a bonding company insurance policy and paid for out of the estate assets.

I always recommend that they buy a bond but few takers in all these years. Most families think it is sort of Govt. red tape dealing with an estate!