been paid, the full amount of the legacy will not be credited to the legatees' account. The credit will be the amounts of the payments only. For this reason the titles of the accounts in the legatees ledger should embrace memoranda of the amounts of the legacies. § 624. Inheritance and Transfer Taxes State inheritance taxes are an advance on legacies, whether or not they are to be collected from the individual legatees, because if not so collected they are a deduction from the legacy to the remainderman. Whether such taxes should be charged to Payments on General and Demonstrative Legacies, Payments of Principal to Trustee, or to Specific Legacies Distributed cannot, however, be told at the time of the initial estimated payment, as this cannot be divided among the legatees. Therefore this payment is best debited to Inheritance Tax Suspense until the true amount is ascertained. When the correct amount of tax has been determined and the state has refunded the difference, if any, the refund will appear as: Cash Inheritance Tax Suspense.... $....... $...... But if the determination of the exact tax shows that more is due than has been paid, the entry of the payment will be made as was that recording the first payment. When the exact tax has been determined, it is possible to divide the tax and charge it against the proper accounts, viz.: (1) Payments on General and Demonstrative Legacies Inheritance Tax Suspense..... For the amounts which the executor $...... $...... The balance remaining in Inheritance Tax Suspense account is the amount due the executor from the recipients of specific legacies. Such collections are entered as: Cash Inheritance Tax Suspense. $....... $....... By these entries the Inheritance Tax Suspense account is cleared. No part of the tax is chargeable to Payments of Income to Trustee because only property existing at the time of death is taxed. The payment of the federal transfer tax will be handled as described in § 605. § 625. Payments of Income If under the terms of the will no trusts are created, the only advantages of separating corpus from income are those general advantages mentioned in § 572, and income may be paid out exactly as by an administrator. But since, when a trust is created, the legatee thereof is not the life tenant or the remainderman, but the trustee himself, the only payments on such a legacy which the executor can lawfully make are to the trustee, whether he or another is acting in that capacity. Therefore any case in which the executor pays to a life tenant an advance on income to become due him under the terms of the will is in reality a payment by the executor to himself as trustee, for which he need as executor take no receipt from the life tenant, because the latter has no status in the administration of the estate. As trustee, however, he should take credit on his trusteeship books and in that capacity should be properly protected by a receipt from the life tenant. (See § 662.) The entry is: Payments of Income to Trustee... Cash § 626. Real Estate Passing Directly $....... If real estate which is to pass directly to devisees has been included in the inventory, the Inventory account must be cleared of the appraised value of this realty by the entry: Specific Legacies Distributed. Inventory $...... $...... REVIEW QUESTIONS 1. What more than is required of an administrator must an executor account for? 2. What additional accounts will be opened? With what is each of of these accounts debited? How is each of these accounts closed? 3. What books should an executor keep? Why is the synoptic not so well adapted to the use of executors? 4. When is a legatees ledger advisable? To what account is this ledger subsidiary? How is this ledger kept? 5. How are advances on legacies entered? How is a payment of a specific legacy entered? 6. How should payment of a state inheritance tax be entered? Against what accounts is it to be finally charged? When the amounts of tax due from specific legatees are collected, how are they entered? 7. When a trust is created, how should payments of income to a life tenant be charged? 8. What is the entry for a specific devise of realty? CHAPTER LXXI CLOSING THE BOOKS AND PREPARING THE ACCOUNT § 627. Preparing to Close the Books When the representative has realized, in so far as he can, on all the assets of the estate, and has paid all just claims against the estate, he is ready to wind up his transactions before closing his books and rendering his final accounting. He must first gather together and pay all the current bills against him, as those for stationery, accountants' services, attorneys' fees, etc. These transactions involve no principles which have not been discussed, and in order not to overburden the text they are omitted from the set of accounts presented. He must also reduce to the present value any deferred expenses still included in his Inventory account. If insurance, for example, had been prepaid by the decedent for several years and had been included in the inventory, the representative must now make the entry Expense, Income Inventory $....... $..... for the amount of the prepayment which has expired since the demise. In other words, he must reduce the book value of the asset to its present worth. If he has discovered any assets not in the inventory, which he has not sold or distributed, he should now make the entry Inventory Assets Not in Inventory. for their fair market value.1 $....... $...... 1 See §§ 301 and 586. For the handling of such an item on the realization account, see the last entry on Form 27. The representative must also satisfy himself that he has settled all inheritance, income, and other tax claims fully, so that no later demands may be enforced against him personally. § 628. The Trial Balance Before beginning to close the books it is wise to make sure that they are in balance. If they are out of balance some account is untrue, and it will be impossible properly to close them until the error is found and corrected. The manner of taking off the trial balance of fiduciary accounts is the same as that of a set of commercial accounts. In reference to the synoptic we saw (see § 583) that since in every entry we have equal debits and credits, on each page we will have a total of debits equal to the total of the credits, and the sum of the page totals of all the debit columns must equal the sum of the page totals of all the credit columns. Before the totals are carried forward from one page to the next, this test of the entries made should be applied, and no totals forwarded until the page balances. In case readdition does not locate the error, it will be necessary to go over the entries and find out on which line the debits do not equal the credits, until all the needed changes are made and the books are in balance. From this explanation it will be seen that, although the synoptic may be looked at as a cash journal, it is a complete ledger in itself, because each account shows the ledger balance of that account. Any page balance of the synoptic is a trial balance at that point, and when we are preparing to close the synoptic the final trial balance will be simply the page balance. The trial balance used for purposes of illustrating the accounting is not that of the administrator's accounts shown in Form 26. It has been drawn from the work of the executor, because of the additional complications usually existing therein, but the same general treatment is followed in the work of an administrator. |