Chapter Nineteen: Mcgraw-Hill/Irwin

Chapter Nineteen
Accounting for
Estates and Trusts
McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
LO 1
Accounting for an Estate
Estate literally means property owned

by an individual
Typically refers to a separate legal entity
holding title to the assets of a deceased
person
Estate accounting focuses on the
recording and reporting of financial events
from the time of a persons death until the
ultimate distribution of all property held
by the estate
19-2
Estate Accounting
Laws governing wills Probate Laws -- Three

and estates are called general purposes:
probate laws. 1) Gather and preserve
Each state establishes all of the property.
its own laws of 2) Carry out orderly and
descent and laws of fair settlement debts.
distribution. 3) Discover and
Almost half of the implement the
states have adopted decedents intentions
the Uniform Probate for remaining
Code. property.
19-3
Estate Property Includes:
Cash
Investments in stocks and bonds
Interest accrued to the date of death
Dividends declared prior to death
Investments in businesses
Unpaid wages
Accrued rents and royalties
Valuables such as jewelry, paintings and
antiques
19-4
LO 2
Legacies and Devises
Gifts of personal property are called
legacies or bequests
Specific legacy (Gift of personal property
from a directly identified source),
Demonstrative legacy , (Cash gift from
particular source),
General legacy (Cash gift from an unspecified
source), and
Residual Legacy (Gift from remaining estate
property).
19-5
Estate Distributions
Priority: If funds are

Specific legacies insufficient to
Demonstrative legacies satisfy all of the
General legacies legacies, the
Residual legacies reduction of
these gifts is
called the
A gift of real process of
property abatement.
is called a
devise.
19-6
LO 3 Estate and
Inheritance Taxes
Federal estate tax rates used to
be as high as 50%.
The estate tax limits The federal govt

vary widely from has repealed the
2009-2011 because of related credit for
expiring tax laws. state taxes and
changed it to a
Some states also deduction going
impose an estate tax. forward.
19-7
LO 4 The Distinction Between
Income and Principal
The recipient of estate income is called the

income beneficiary.
The recipient of the estate principal (also
called corpus) is called the
remainderman.
How income is to be determined should be
defined by the decedent in the will to
avoid confusion.
19-8
The Distinction Between
Principal of the estate includes the assets that
existed at the date of death, which became
assets of the decedents estate.
Adjustments to principal include:
Life insurance proceeds where the estate
was named beneficiary.
Debts.
Funeral expenses.
Gains and Losses from sale of assets.
Homestead and family allowances.
19-9
The Distinction Between
Income of the estate includes all revenues and
expenses incurred after the date of death.
Reductions to income include:
Recurring taxes (such as real and personal
property taxes),
Ordinary repair expenses,
Water and other utility expenses,
Insurance expenses, and
Other ordinary expenses required for the
management and preservation of the estate.
19-10
Recording the Transactions
of an Estate
Estate assets are recorded at FMV.

Debts, taxes & other obligations are
recorded when paid.
Distribution of legacies are not recorded
until actually conveyed.
Separately identify income and principal
transactions. Often, two cash accounts are
maintained.
19-11
LO 5
Charge and Discharge Statement
Periodic reports disclose progress in
settling the estate.
Separate statements are required for
income and principal.
Each statement reports:
Assets under the control of the
executor.
Disbursements made to date.
Any property still remaining.
19-12
LO 6
Trusts
A TRUST is created by the conveyance of

assets to a fiduciary (or trustee) who manages
the assets according to the stipulated
instructions.
Trusts are often established to reduce the size
of a persons taxable estate and the estate
taxes that must be paid.
A trustee may be an Individual or an
organization.
19-13
Different Types of Trusts
Revocable Living Trust Grantor Retained

Credit Shelter Trust Annuity Trust
Qualified Terminable Minors Section
Interest Property Trust 2503(c) Trust
Charitable Remainder Spendthrift Trust
Trust Irrevocable Life
Charitable Lead Trust Insurance Trust
Qualified Personal
Resident Trust
19-14

Chapter Nineteen: Mcgraw-Hill/Irwin

Uploaded by

Copyright:

Available Formats

Chapter Nineteen: Mcgraw-Hill/Irwin

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chapter Nineteen: Mcgraw-Hill/Irwin

Uploaded by

Copyright:

Available Formats

Chapter Nineteen

Estate literally means property owned

Laws governing wills Probate Laws -- Three

Priority: If funds are

The estate tax limits The federal govt

The recipient of estate income is called the

Estate assets are recorded at FMV.

A TRUST is created by the conveyance of

Revocable Living Trust Grantor Retained

You might also like