Beginning this year, and for however many years that I am able, I am turning these confounding queries and quandaries into articles for future reference. Every year seems to have one or two that dominate the time and effort we expend, usually without charge, in service to our clients' goals. As you consider the following question and discussion, remember than most of our clients employ some form of trust in their estate plan, and settlement of the vast majority of these involve no probate, no involvement with the probate court, and of course, no purpose in seeking or obtaining appointment of an executor. The general information that we provide indicates that the successor trustee should file the deceased's final tax return, and by implication, that s/he can sign the return.
Every season we are besieged by hysterical calls usually within weeks, days or hours of the filing deadline; "I was just advised that a trustee cannot sign the final tax return, and only and executor or administrator appointed by a probate court can file the return, Help!" Often, this is the first my office learns of the death of a client, which only adds to the "drama." Often, too, clients' successor trustees have already consulted with another lawyer, who has asked for an extravagant retainer to prosecute a hastily prepared probate to seek and obtain appointment of a fiduciary. Fortunately, there is no reason for hysteria or concern, and the answer is quite simple and satisfying.
So, who can sign a return for a deceased person? Such a common and simple question, which apparently elicits different responses from different people, some wrong or partially wrong, and more often than not, missing a more important question soon discovered.
To begin, the answer to the direct question is rather simple; a surviving spouse, trustee, executor, guardian, custodian, administrator, or conservator can sign a return on behalf of a deceased person. An agent or attorney-in-fact under a power of attorney cannot technically sign the return; the powers are void on the death of the Principal. What if, however, the agent/attorney-in-fact has property or assets of the deceased? Then the agent is a custodian and can sign as a custodian.
The answer to that question begs another: who can negotiate a refund check? The answer should be determined before a fiduciary actually has a check in hand. Regardless, determination and resolution should not impede filing the return. In other words, there is time to make a determination if there is a problem, and implement a solution if necessary.
The material question isn't even whether there is a refund, but whether there will be a substantial refund. If there is any refund, technically, a probate has to be opened to appoint a fiduciary (executor or administrator) empowered to negotiate the check, which will be made out to the deceased or the estate of the deceased. Clients often ask, "Can I just deposit the check into the trust account?" Legally, no. Practically, maybe.
Because I can't assure a client that a bank will negotiate a check made out to a deceased person or the estate of a deceased person, suggesting they may do so would be poor "practical" advice. Legally, though, there is no real option. The trust estate and probate estate are different estates, and they may have different beneficiaries, and fiduciaries. Legally treating one as another is dangerous and unwise. Despite that banks do and have permitted negotiation of such checks, an executor or administrator should be appointed to negotiate the check and distribute, legally, the proceeds.
IRS uncertainty makes the matter even more difficult; if the return is signed on behalf of the deceased by someone other than the deceased, and the date of death is not disclosed or is overlooked by the Service, there is the possibility that the refund check will be drawn payable to the deceased, and not to the estate of the deceased. This occurs, too, when a tax preparer (layperson or professional) is unsure whether or how to advise the Service that the return is a final return on behalf of a deceased. A check drawn payable to the deceased is significantly more likely to be accepted by a bank on deposit into the deceased's irrevocable trust, than would a check made out to the "estate of" the deceased. I advise clients that a probate fiduciary should be appointed to negotiate the check.
There is no answer to the question, what constitutes a "substantial refund." If the refund is too small, less than fifty dollars, for example, it may not make sense to appoint an executor/administrator given the cost. The court filing fee for a Summary Administration without a Will typically exceeds $80.00. Obviously, the circumstances and the amount of the refund will dictate or inform the proper course of action.
"But I only did the return to get the refund," is a common lament. "Yes," I reply, that may be true, but you also prepared the final return because it is your duty to do so, and there is no way other than filing the return to know that you have accounted for all income, and paid all taxes that are due. These are your legal responsibility. In other words, had you called and asked, 'I am confident that the deceased doesn't owe any taxes, so I don't have to file a final return?' my reply would have been along the lines that the only real way to know, and more importantly, the only way to start a statute of limitations running if you are wrong, is to file the return."
Bottom line? A successor trustee can and should sign the return.
The following is from the IRS in response to the question "who can file a decedent's return?"
The personal representative of an estate is an executor, administrator, or anyone else in charge of the decedent's property. The personal representative is responsible for filing any final individual income tax return(s) and the estate tax return of the decedent when due. You may need to file Form 56, Notice Concerning Fiduciary Relationship to notify the IRS of the existence of a fiduciary relationship. A fiduciary (trustee, executor, administrator, receiver or guardian) stands in the position of a taxpayer and acts as the taxpayer.
So when an advisor says a trustee cannot sign a return, they are probably saying that the trustee "shouldn't," sign the return under the circumstances, or advising that they may not be able to negotiate the check. Clearly, a fiduciary or other representative can sign a return on behalf of a deceased.
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