This is done in order to show in one account the charging of the representative with the amount of the inventory, since the first item in the final accounting (see § 632) will be the charge for the amount of the original inventory. (See Form 28.) The use of the Inventory account has been explained in § 575, and the manner of entering assets realized upon in advance of the completion of the inventory has been set forth in § 591. As has been said, care must be taken to see that the credit given to the Inventory account at the time of realizing upon each asset is the same as the amount with which the Inventory account has been debited for that asset, i.e., its appraised value. If this is not done the accounts will not close out properly to show the necessary clearance for the executor or administrator. For this reason it is wise at the time of entering the inventory to examine the credits (Entries Nos. 1, 3, 4 and 5) which have previously been passed to the Inventory account to make sure that all the items have been credited to that account at the figures at which they were included in the inventory. In the present instance, if the life insurance policy had erroneously been inventoried at only the principal of $5,000, the dividend of $177.69 having been ignored, it would now be necessary to make a correcting entry for the difference Cash ... Gain on Realization... $177.69 $177.69 or else to correct the previous entry so that it would read The credit to Gain on Realization account instead of to Assets Not in Inventory is suggested on the theory that the policy and the dividend are one, worth $5,177.69 instead of $5,000. § 597. Payments on Taxes on Real and Personal Property There is no apportionment of taxes between corpus and income, as they are regarded as absolute debts at the date of their assessment. (See § 205.) For this reason payments of taxes assessed prior to the death of the decedent, whether or not actually due before the demise, are debited to Debts of Decedent (Entry No. 10). Taxes assessed after his death, however, are debited to Expense, Income (Entries Nos. 24 and 33). Since the realty usually passes directly to the heirs without coming into the estate, the only real estate taxes to be paid by the administrator are those assessed prior to the date of death. The date of assessment is generally construed as being the date on which the levy was certified to the assessing officer or was adopted by ordinance or statute, as may be the case in the particular jurisdiction. We have, then, the following summary of the transactions having to do with the local property taxes: Tax for last half of 1918. Assessor's valuation placed in spring of 1918; tax levied in fall of 1918 (before demise). Due fall of 1919: personalty, $2,758.41; realty, $1,243.69; both charged to Debts of Decedent (Entry No. 10). Taxes for 1919. Assessor's valuation placed in spring of 1919; tax levied in fall of 1919 (after demise). First half due spring of 1920: personalty, $3,012.26, charged to Expense, Income (Entry No. 24); realty, $1,299.91, paid by heirs. Second half due fall of 1920: personalty, $3,012.26, charged to Expense, Income (Entry No. 33); realty, $1,299.91, paid by heirs. § 598. Income Entry No. II shows the credit for the semiannual interest on the savings account in the Montrose Trust Company. The part of this interest which had accrued prior to the decedent's death on October 15 must be handled on the books separately from that which was earned after that date, the former being a part of the corpus (see § 307) and included in the inventory, and the latter being income.1 Therefore the entry for the interest is: Entries Nos. 12 and 13 show the receipt and division between corpus and income of two other items of interest. In Entry No. 25 there is shown the receipt of interest, none of which had accrued prior to the decedent's death. The Income Account . . . tells its story (which commences from the death) and shows what income was produced by the estate, and from what source income was derived.' § 599. Debts of Decedent The executor is now ready to begin paying ordinary claims against the estate. (For law, see Chapter XIV.) Entry No. 14 is typical of the payment of a simple debt which had been incurred by the decedent: Debts of Decedent... Cash § 600. Expense Against Income $...... $...... Just as interest receivable which had accrued before the decedent's death is corpus and that accrued after the demise is income, so interest payable accrued before the decedent's death is a charge against corpus (debited to Debts of Decedent) and that accrued after the demise is a charge against income (debited to Expense, Income). Entry No. 15 shows the 1 The state laws as to the computation of interest should always be followed. The federal law and the statutes of many states require that the 365-day basis be used. 2 Caldicott, Executorship Accounts. payment of a mortgage note for $1,000, the interest of $30 having accrued as follows: There are in this transaction two possibilities of confusion. It is presupposed that the decedent had purchased certain realty, making a partial payment and giving a note secured by mortgage for the balance. The law relating to this condition is set forth in § 127. The decedent owned the real estate, but the unpaid portion of the contract price is a debt and, like any other debt, must be paid out of the personal property of the estate. Under no circumstances is it to be considered a further investment in real estate. If the other real estate of the decedent was included in the inventory, this should also have been, not at the cost of the equity, but at the appraised value of the property. Many persons are confused as to the justice of charging against income the interest accruing after the testator's death. They would argue that the persons entitled to the income should not have to pay this interest, as it is not a cost of collecting or handling the income. The law takes cognizance of the fact that if the interest-bearing indebtedness had been paid off, it would in all probability have been from money secured by the sale of an income-producing asset, thus reducing the income which would have been distributable. Therefore this interest, by the payment of which other funds are left free to draw income, is charged against income. § 601. Payment of Tax on Decedent's Income The federal and any other income taxes owed on account of the decedent's income before his death are considered a debt as of that time and as such are deductible in determining the amount of the taxable estate. (See § 267.) For this reason their payment is charged to Debts of Decedent (Entry No. 16). Income taxes against the income of the estate, however, are expense against income, but the federal tax is not an expense deductible in determining the amount of that income for purposes of ascertaining the amount of that tax. The administrator must usually file two federal returns of income for the estate, as no return may cover a longer period than twelve months. The law regarding the federal income tax and the need for the representative making sure that the returns are properly filed and the tax fully paid are shown in Chapter XXVIII. The tax when paid is a charge against income, and is recorded by the entry: Expense, Income Cash & 602. After-Discovered Assets $........ $..... The entry in the case of after-discovered assets (see § 586) is always (No. 17) Cash ... Assets Not in Inventory. $........ $...... for the amount which is realized if they are sold. If not sold the procedure outlined in § 627 should be followed. |