Honesty, cash and the estate tax

Ask NJMoneyHelp

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Q. When my mother died two years ago, she had a safe with $100,000 in it. My brother, who was in charge of the estate, never added it to her assets. The amount would have put my mom over the $675,000 limit. I just found out about this and I feel a little guilty. What should I do?
— Not a tax cheat

A. It can be hard to do the right thing, but you and your brother need to do the right thing.

The executor of an estate is required to prepare and file the necessary returns and, in doing so, to collect, value and report all of the assets of the estate, said Frederick Schoenbrodt, an estate planning attorney with Bressler Amery Ross in Florham Park.

This includes any cash that’s in the hands of the person who died — the decedent.

“Here, it sounds as if your brother’s failure to include the cash in his inventory of the estate assets kept the estate below the reporting threshold so no return was filed,” Schoenbrodt said.

Like any other tax, until an estate tax liability is paid, the unpaid tax will accrue interest and the estate and executor may be subject to penalties for nonpayment. Further, civil and criminal penalties may also apply if his failure to file is deemed fraudulent, Schoenbrodt said.

“Bear in mind that, unlike the case where a return is filed, no statute of limitations runs where assets are not reported since the assets have not been disclosed and the taxing authorities have not been given an opportunity to review and evaluate reported information,” he said.

Schoenbrodt said even when the failure to file results from an honest mistake, If the estate is audited, the executor can be personally liable for the unpaid tax, interest and penalties because he has distributed the estate’s assets. If your brother obtained a refunding bond or other agreement from you to repay any distribution if future liabilities arise, you may be forced to satisfy your share of that obligation, he said.

Peace of mind is an important benefit of tax compliance.

A properly prepared but late filed return, if one was never filed, or a corrected return, if one was filed but the cash not reported, should give you that peace of mind at what is likely to be a relatively minor tax cost, he said.

“Your demand that any interest and penalties be allocated to his share of the estate would be reasonable under the circumstances,” Schoenbrodt said. “Discuss your concerns with your brother and your concerns with a knowledgeable and reputable accountant or tax attorney, then see that an accurate return is filed.”

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NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.