On July 8, 2013, the plan to complete the returns came into focus. On this day, the tax professional asked for a copy of the will to complete the planning. At the time, the tax professional was looking into charitable deductions and if the will provided for them. So, I sent a copy of the will through email as a PDF file. In addition, in the same email, I outlined why I wanted the estate to pay the estate income tax. After sending the email, I knew the plan to complete the returns was near completion.

The Plan to Complete the Returns

On July 15, 2013, the tax professional called me with questions about the will. After clearing up some confusion about the will, the tax professional revealed the plan. The plan to complete the returns was as follows:

• The estate will have two sets of estate income tax returns.
• The first set of returns will report the income and deductions of the estate for the fiscal year ending on 8/31/2013.
• The second set of returns will report the rest of the income and deductions for the short year beginning on 09/01/2013 and ending on 12/15/2013.
• Prepare a partial distribution consisting of only the proceeds from the sale of the rental property.
• Distribute proceeds according to the will and make sure the charities receive their distribution.
• Pay out all tax-deductible expenses.
• The taxable income of the estate will pass through to the beneficiaries.

The plan to complete the returns appeared well thought out. Initially, the two sets of returns seemed expensive, but made sense. There would be residual expenses and a final distribution after the fiscal year return. Therefore, the short year return would be the cleanup return. However, the issue of passing through the taxable income to the beneficiaries was still a concern in my mind. As a result, I thought including the attorney in the debate would break the deadlock.

The Decision on Who Pays the Estate Income Tax

On July 16, 2013, I called my attorney about the estate income taxes. At this point, I was looking for a third opinion in which the attorney wasn’t ready to give. As a result, the attorney agreed to discuss the matter with the tax professional.

The next day, the attorney called the tax professional. Soon after the discussion, the attorney called me and said, “I agree with the tax professional. The estate would pay less in taxes by passing the taxable income to the beneficiaries. So, you should take the advice of your tax professional.” While not surprised by the outcome of the call, I felt slightly frustrated and replied, “Yeah, it does make sense even though the money is there for the estate to pay the income tax. Okay, that’s what we’ll do then. Thanks for making the call and for your advice.” So, the discussion between the attorney and tax professional settled the debate over paying the estate income tax. The taxable income would pass through to the beneficiaries.

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