Dear Tax Talk,
My grandmother died in April 2009. My siblings and I were among the beneficiaries. We have never gotten any money, but on April 15, 2010, I did get a tax bill saying that the estate reported giving my money to the government. I had to re-file and pay a lot of money in taxes. I called the estate attorney, who said I would receive money right away. I never heard another word. I have not been able to reach the executor of the will. The will says all expenses and taxes should be paid by the estate, but the IRS said I better pay it if they reported me as having it. So I did. And now I think I’m screwed, because neither my siblings nor I have gotten any money. I am not sure of the next step.
— Alex

Dear Alex,
Part of your problem is tax related the other is probate related. Probate is the legal process of administering your grandmother’s will. The administration is usually done under court supervision so that all persons and creditors entitled to property under the will receive their claims and distribution of assets. The will usually designates an executor who is referred to as the personal representative. The personal representative has fiduciary duties in administering the property much the same way as a business or trust would. The personal representative is usually entitled to a fee, as is the attorney for the estate. These fees can be fixed amounts or expressed as a percentage of the assets of the estate.

As beneficiary, you are entitled to petition the probate court to have your interests protected. The probate court is usually the court where the decedent resided. You should contact the clerk of the court where your grandmother died to determine the status of the probate proceedings and to be certain that you and your siblings are kept abreast of all the proceedings. As beneficiaries you have the right to remove the personal representative or attorney if they are not carrying out the probate in your best interests.

While the estate is responsible for estate taxes, if any, beneficiaries that receive distributions during the tax year are responsible to pay tax on the income of the estate. Estate taxes are imposed on the value of the assets of the decedent. In 2009, estates valued under $3,500,000 were exempt from federal estate tax. State taxes vary by jurisdiction, so I wouldn’t be able to tell you if there are any estate taxes without that information.

There are two types of beneficiaries. One type involves those who receive specific bequests, such as jewelry to a granddaughter and $10,000 to a grandson. The other type involves those receiving the balance of an estate, such as if one leaves an estate to be divided equally among four grandchildren.

Income earned by the estate can either be retained or distributed to the residual beneficiaries. If you did not receive a distribution of money or property in 2009, then you should not have been given a “tax bill.” By tax bill, I assume you mean that the estate issued you a Schedule K-1. Schedule K-1 is used by the estate to inform the beneficiary of their proportionate share of the estate’s income that was distributed during the year. If there were no distributions, then you should not have received a Schedule K-1. The estate would be responsible for any tax on income earned.

Since you should not be having these doubts and this lack of communication, I highly recommend you hire an attorney or accountant to protect your interests.

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