basic ways to hold title to assets. Here is this list of players:
(1) Individual & Sole Proprietorship;
(6) Limited Liability Company;
(7) Retirement plan;
(8) Custodian under UGMA or UTMA; and
Individual ownership does not add any asset protection. There is nothing to insulate you from creditors. You are exposed to the world of creditors. However, assets in the decedent’s individual name are controlled by decedent’s will. If a decedent is single, the will controls everything in the decedent’s individual name. If the decedent is married, the will may not control all property in the individual’s name since it could be community property. In such a case, the will can only control the decedent’s one-half interest in the community asset. Even in a community property state, if the asset is a separate property asset (i.e., acquired either before marriage or during marriage by gift, inheritance, or earnings from a separate property), then the will can control all of it.
From an asset protection viewpoint, a corporation is a better business entity. A corporation can protect personal assets from business obligations and creditors. If pass-through taxation is desired, an S corporation can be adopted. However, many small business owners are unsophisticated and do not appreciate the benefits of asset protection.
Note: Incorporation can be the most valuable insurance you can buy. In most cases, sole proprietorships must rely on insurance to cover the risks of lawsuits, disability, and premature death. Personal service businesses are particularly sensitive to an owner’s disability. No services translates into no earnings. While accounts receivable may carry the business for a short time, unless the sole proprietor returns, the business is finished.
(1) Supplemental perils can protect a business from water damage and
(2) Credit insurance can ensure the collectibility of large debts;
(3) Accounts receivable insurance;
(4) Extended coverage for actions outside your business premises;
(5) Bonding insurance to cover embezzlement losses; and
(6) Business interruption insurance.
Corporations are powerful asset protection tools. When structured and maintained properly, the owners of a corporation (and its officers and directors) are not personally liable for its operations or debts. This means that an investor in the corporation only stands to lose the money or property that they put into the corporation.
Note: Corporations can even be used to shelter personal assets. Sometimes a corporation will be formed by one’s spouse or other family members for nominal consideration. Later, one might transfer assets to this corporation for a minority interest in the corporation. Even if subsequent creditors were to obtain your stock, it would only be a minority interest in the corporation and of limited value to creditors.
4. Always sign documents in the corporate name. The corporation must be the party contracting. Below the corporate name, you should designate your corporate title and only then enter your signature.
5. Don’t commingle personal funds or assets with those of the corporation. If you ignore the corporation, so will the legal system. Any transactions, such as loans, rentals, wages, or reimbursements, between you and the corporation should be fully documented.
(1) Loans for which personal guarantees or pledges of property are obtained; and
(2) Employment withholding taxes and sales taxes.
From a tax viewpoint, a regular corporation is generally not a desirable entity for holding investments. If an asset or investment is operated within a regular corporation, all income is attributed to the entity. If this income is then paid out or distributed to the shareholders as a dividend, the income from the investment will be taxed again.
This double taxation could be avoided by paying out the income as salary. However, such compensation can only be paid to employees providing services to the corporation and must be reasonable in amount.
Once the property is sold, the net proceeds belong to the corporation and can only be paid out as dividends or compensation. Again, this will result in double taxation3. If this were not bad enough, deductions such as depreciation, cost recovery, tax credits, interest, property taxes, and losses do not pass through to the shareholders and can only be carried forward or back by the corporation. This means that the shareholders will not be able to obtain any of the tax shelters that the assets throw off in the form of write-offs. Moreover, corporations can no longer use accelerated depreciation or cost recovery to determine their earnings and profits and thereby pay dividends that are tax-free.
The S corporation can now be used as a vehicle for holding passive investments and may realize up to 100% of its income from passive sources so long as it has no corporate earnings and profits (§1362(d)(3)). However, there is a tax at the corporate level on certain capital gains and “excess passive income” for S corporations that were previously C corporations (§1374 & §1375).
(b) Reducing unreasonable compensation problems;
(c) Splitting income among family members by way of gifts of stock; and
(d) Allowing shareholders to deduct business losses against outside income.
(1) A grantor or donor (creator of the trust),
(2) A trustee (manager of the trust assets),
(3) A beneficiary or beneficiaries (person or persons receiving the trust income and/or principal), and
(4) The property or funds (corpus) that go into the trust.
Trusts are used for many different purposes and come in a wide variety of formats. Some trusts are used solely for probate avoidance and estate or income tax savings. There are also trusts that are designed for protection against judgment creditors. Still, others try to combine all these objectives.
sense that one can always change its terms through the formal procedure of changing the will of which it is a part. Living and testamentary trusts become irrevocable at the death of the grantor.
Revocable trusts offer little or no asset protection. Since the grantor can easily transfer assets in and out of such a trust or revoke the trust entirely, creditors can likewise reach the assets in a revocable trust. The grantor’s creditors essentially stand in the same position as the grantor and can compel the grantor to re-transfer the asset for their benefit.
Note: The exact rights of the grantor’s creditors will, of course, depend upon the language of the trust and local state law. A few states provide that in the absence of a fraudulent transfer, creditors cannot reach assets in a revocable trust.
Some small asset protection benefit can be taken from the fact that creditors must generally proceed against the assets in the debtor’s name first before looking to the trust assets. In addition, the grantor’s assets may not be readily apparent to potential creditors when held in the trust name. While the trustor is alive, most trusts are revocable – i.e., it can be changed or terminated. Normally, when a person sets up a living trust, they want the power to change the trust during their lifetime. Testamentary trusts are also revocable since one can always change their will before death. After death, the trust is irrevocable and cannot be changed. When one has the right to revoke a trust, that person is its owner for estate (§2038) and income (§671 through §679) tax purposes.
Dan sets up a revocable living trust for his son, Ralph. Since Dan can revoke the trust, he will be taxed on all the trust income and capital gains during his lifetime, and the trust assets will be included in Dan’s estate on death.
Many states recognize land trusts as a vehicle for holding title to assets. The concept is particularly popular in states such as Illinois and Florida that have specific statutes enabling such trusts. Most other states recognize the land trust under general legal principles as a revocable common law trust.
An irrevocable trust is preferred in asset protection planning since it provides a high degree of insulation from creditors. However, to fully take advantage of that protection, transfers to such a trust must occur at a time when it cannot be challenged as a fraudulent transfer. An irrevocable trust cannot be changed or canceled. The term applies to living trusts, for with a testamentary trust the trustor is dead and by definition cannot change the trust. Thus, most trusts become irrevocable at death.
irrevocable trust could be established for children or others. However, to avoid estate and income tax, the grantor cannot:
(1) Act as trustee,
(2) Receive income or other benefit from the trust, or
(3) Receive the assets from the trust (§2036 & §2043).
(2) Reserve any rights to take back property once transferred to thetrust;
(3) Have any authority on how trust property will be managed or invested;
(4) Have any control over income distributions from the trust; and
(5) Serve as trustee.
Trust provisions can be contained in the will. In this event, the trust is referred to as a testamentary or court trust. However, since the trust does not come into existence until the time of death, property cannot be put into such a trust while the testator is alive. Property must go through probate to fund this type of trust. After death, there is no difference between a living trust and a testamentary trust.
Business trusts were once a popular asset protection device. In fact, in pre-colonial America, they were often used instead of corporations. Under a business trust, trustees hold and operate business assets under the terms of the trust agreement for the benefit of trust beneficiaries. In some states, beneficiaries can be held personally liable for the debts of the business trust. In an attempt to reduce this exposure, business trusts often contain language limiting a beneficiary’s liability to the amount they have invested in the trust.
Unlike typical trusts that are used to hold and invest assets, business trusts are formed to operate a business and produce profit. Business trusts that have the characteristics of corporations will be taxed as corporations. Thus, the use of a trust does not offer the tax advantages of conduit trust taxation in most business situations4.
Note: One advantage of a business trust over a conventional corporation is that a business trust is a private agreement between the parties. It requires very little formal action to establish. The business trust involves no public filings and its trustees and beneficiaries remain private.
Real estate and certain other ventures may be organized in a trust form, with the trustee as manager and the grantors as beneficiaries. However, there is a strong likelihood the trust will be characterized as a corporation for tax purposes (Morrissey v. Comm., 296 US 344 (1935); Reg. §301.7701- 4(b); R.R. 78-321). Nevertheless, if the trustee is passive or management decisions require the approval of all beneficiaries, it may be characterized as a trust (Wyman Building Trust, 45 BTA 155, acq., 1941-2 CB 14; Elm Street Realty Trust v. Comm., 76 TC 803 (1981), acq.). However, characterization as a true trust may not be beneficial based on the income tax rates applicable to any income retained by the trust.
We will find that the major use of a trust is in the gift and estate tax area.
Formerly, it was popular (among the “rich and famous”) and profitable to establish a trust in a foreign “tax haven” country. This loophole was closed with the passage of §679. A foreign trust can still be set up, but little if any taxes will be saved.
Under §679, a U.S. citizen or permanent resident, who sets up a foreign trust which can make any payments to a beneficiary in the United States, is the owner for income and estate tax purposes and is taxed on all of the income and capital gains.
An asset protection trust (APT) typically refers to a grantor trust created offshore by a U.S. resident. In most cases, the principal purpose is to transfer assets into the trust and avoid the reach of creditors. Note: An asset protection trust is normally created under the laws of a foreign country with a foreign person as one of its trustees. It is often coupled with one or more domestic family limited partnerships or other underlying entities.
Popular jurisdictions for the formation of such trusts include:
(1) The Bahamas,
(2) The Cayman Islands,
(3) The Cook Islands,
(4) The British Virgin Islands,
(8) The Isle of Man, and
(1) Favorable debtor protection laws,
(2) Availability of professional services,
(3) Stable economy and politics,
(4) Liability of trustees for errors, omissions, and malfeasance,
(5) Favorable tax laws, and
(6) Modern computer and telecommunication equipment.
Many people believe that transferring their assets to an offshore trustee is the ultimate protection for themselves and their families from creditor claims. However, asset protection trusts are drastic and expensive. Before adopting such a strategy, one would be well advised to exhaust all domestic asset protection devices, including:
(1) Gifts to family members,
(2) A domestic irrevocable trust,
(3) A charitable remainder trust,
(4) A grantor retained income trust,
(5) Life insurance, and
(6) An irrevocable life insurance trust.
(1) Creditors will encounter difficult legal and practical hurdles in recovering assets from the trust (even if the creation of the trust is held to be fraudulent);
(2) Foreign trusts are less likely to be automatic targets for litigation against the grantor (i.e., the debtor);
(3) Foreign jurisdictions are more protective of debtors’ assets; and
(4) Foreign trusts provide probate avoidance, privacy, favorable taxation, and a vehicle for global investment.
If a majority of the trustees are U.S. residents, the asset protection trust, even though created under foreign law, will be a U.S. resident trust under federal income tax law. As a result, many APTs have only foreign trustees. In such a case, the APT could qualify as a foreign trust for federal income tax purposes. The significance of foreign trust status is the application of special reporting requirements on creation, transfer of assets, and annually.
Note: Foreign trusts must file Form 3520 on or before the 90th day after the creation of the trust or the transfer of any money or property to the trust by a U.S. person. Form 3520-A is required to be filed annually by the U.S. grantor of a foreign grantor trust treated as such pursuant to IRC §679.
If the APT is a foreign trust, its U.S. source interest, dividends, rents and other “fixed or determinable annual or periodical gains, profits, and income” will normally be subject to 30% withholding. Regardless of the trust’s status as foreign or domestic, the APT is usually drafted so that the grantor retains powers that result in the trust being treated as a grantor trust (§671 through §678) under federal income tax law. Thus, the trust’s income and deductions are attributable to the grantor.
To avoid adverse federal gift tax consequences, a grantor will typically fund an APT with an “incomplete gift.” Incomplete gifts are included in the donor’s estate at death. Thus, on the grantor’s death, the property held in the APT will be subject to federal estate taxation. Like its domestic counterpart, the APT may have provisions for claiming the applicable exclusion amount, marital deduction, and generation-skipping transfer tax exemption. In addition, the APT should eliminate probate and provide a measure of privacy.
The major problem with an APT is that once it is created in a foreign debtor protection haven it would be difficult to maintain that the debtor’s primary purpose was not to hinder, delay or defraud creditors – i.e., a fraudulent transfer had been made.
(1) A foreign judgment creditor commences their action from the beginning in the courts of the foreign jurisdiction;
(2) A creditor prove not only fraudulent intent but that the transfer rendered the debtor insolvent; or
(3) A creditor’s claim must arise before the transfer of assets to the APT.
As an alternative to attacking the APT, creditors might pursue the resident grantor debtor and their advisors. In some states, it is a crime to make or assist someone in making a fraudulent transfer. Moreover, a creditor could attempt to obtain a judgment requiring the debtor to turn over assets transferred to an APT. Should the debtor fail to do so, a contempt of court order may be obtainable.
Some APTs anticipate contempt proceedings and leave the grantor without any power to cause a rescission of the trust. The debtor would then argue as a defense that they are unable to obey the court order. However, such a defense is normally unavailable where the inability to obey is caused by the party’s own willful conduct.
This is a popular term with no particular meaning. In recent years, unscrupulous individuals have promoted the idea that it is possible to set up a “family trust” that has the ability to avoid all federal taxes. This arrangement has been called “The American Birthright Trust,” “The Family Estate Trust,” “The Constitutional Trust” and other titles. Using such a device an individual sets up an irrevocable trust and appoints a committee to run it. The individual then assigns all his or her income (including future income) to the trust. The trust income is then either accumulated or distributed among spouses, children, or other relatives. The trust also pays for and deducts any expenses of the grantor. Supposedly, the grantor is taxed on only what he or she is paid by the trust. There is no merit to such a trust.
A Medicaid trust is a planning tool to help older people protect their assets from nursing homes. When done correctly, money and property put into such trusts will not be depleted by long-term health care costs. Transfers to Medicaid trusts must generally be made at least 36 months before a person enters a nursing home. In addition, the transferor must give up control of the transferred assets. OBRA ‘93 changed this area dramatically and should be consulted before adopting any such trust.
A grantor retained income trust (GRIT) is structured to pay income to the grantor for a predetermined time period, with the remainder interest later transferred to heirs. Such a trust is a grantor trust under §677 and is not primarily designed to save income tax but rather estate tax. Under a GRIT, the grantor places assets into an irrevocable trust and retains the enjoyment of the trust income for a specified term. At the end of the term, trust principal passes to heirs. If the grantor lives out the term, none of the assets are included in the grantor’s estate because the grantor has retained no interest in the trust asset at death (§2036). However, if the grantor dies before the term expires, the date of death value of the property will be included in the grantor’s estate (§2036(a)(1)).
Co-tenancy (or co-ownership) is common where more than one person owns an asset. However, there are various types of joint ownership of property and how you hold property with others directly impacts asset protection and tax liability.
Note: Choosing the wrong co-ownership format can increase your exposure to creditors beyond what you would have faced if you had owned the property in your name alone. It can also double your estate tax on death.
A tenancy in common is an undivided interest that can be transferred during life or death. Each co-tenant can sell, mortgage, will, or otherwise dispose of their interest in the property. Any of these acts can be done without the consent of the other tenant-in-common.
Note: A tenancy-in-common with more than 3 to 4 co-tenants becomes difficult to operate and greatly increases exposure to creditors. Other entities, such as partnerships, limited liability companies, and certain corporations, work better for such large numbers of owners.
Since a tenant-in-common owns their interest separate and apart from the other co-tenants, this would at first appear to be an asset protection advantage. The creditors of one co-tenant would only be able to reach that cotenant’s interest and not the interests of other tenants-in-common. However, tenant-in-common interests are undivided interests and once a creditor obtains such an interest they can bring an action to force a sale of the property and divide the proceeds. If the creditor elects not to force a sale of the property, you end up with a stranger for a co-owner.
Tenancy in common is frequently used when several people go together to buy real property. When two or more people hold title as “tenants in common,” they own an undivided interest in the property. A person’s will controls only their share of assets held as tenants in common.
Dan and his brother, Ron, purchase a house. Dan puts up 60% of the money and Ron puts up 40%, taking title as tenants in common to reflect their unequal interests. Tenants in common title will also allow their wills to transfer their respective shares.
Two or more persons may hold title to real property as tenants-incommon that expresses their fractional or percentage interests in the undivided whole. Unlike joint tenancy, their interests do not have to be equal6 and tenants-in-common may hold their interests in varying percentages; e.g., 60/40, 90/10, etc. A tenancy-in-common operates much the same as individual ownership in that each tenant-in-common treats the fractional ownership in the same manner as if that interest were the entire property.
Tenancy-in-common has no survivorship aspect. On the death of any tenant- in-common, their interest would pass to their heirs. This can create its own problems. Rarely do the heirs have the same financial position, exposure to creditors or investment goals. As a result, co-tenants may wish to have a buy-sell agreement triggered by the death of any tenant.
Joint tenancy offers little asset protection. Creditors of any joint tenant can reach a tenant’s interest in the property. Once the interest is seized, creditors can force a sale of the property.
For example, it is a gift to put real estate or any form of securities into joint tenancy.
All joint tenants have an equal interest in the property. On the death of a joint tenant, the property must pass to the surviving joint tenants. This occurs by operation of law outside the probate estate and is therefore not affected by the will of a deceased joint tenant. A joint tenancy can be an advantage if the surviving joint tenants are intended to inherit the property in equal interests. A secret sale by one joint tenant normally ends the joint tenancy and creates a tenancy-in-common8.
Some states use a form of title called “tenants by the entireties.” This is basically a joint tenancy registration between husband and wife. However, it differs from a true joint tenancy in several ways. Its survivorship feature can only be broken with the consent of both spouses, while in a joint tenancy any coowner can cause a severance and undo survivorship. Originally, only the husband had control of property held as tenants by the entirety, and he was entitled to all income from the property. While some states have modified this, in those that have not, it also differs from joint tenancy where each co-owner is entitled to an equal share of the income.
A major disadvantage of co-tenancy is the right of partition, in which one tenant or creditor of one tenant can force a judicial sale of the entire property despite objection from the other co-tenant. Such a sale could arise from unpaid taxes or action by a judgment creditor against a co-tenant.
California does not recognize such registration. General partnerships are partnerships in which each partner involves himself or herself in the management of the company. Each general partner has joint and several liability for the actions of any other partner within the scope of the partnership business.
Note: Distinctions are sometimes made between general partnerships and joint ventures.
Limited partnerships have both general and limited partners. General partners manage the entity and limited partners are not permitted to participate in the day-to-day management of the company. However, limited partners generally have their liability limited to their capital investment.
Note: A partnership is not taxed as a separate entity but determines its income and files its return (Form 1065) essentially the same as an individual. While the partnership does file a return, this return is for informational purposes only (§6031). Each partner reports and is taxed on his or her share of the income and loss from the partnership (§702)10.
Family limited partnerships have become a popular asset protection tool. Assets that are attractive to creditors are made unattractive by transferring them to a family partnership in return for general and limited partnership interests.
Most state partnership laws limit a creditor’s remedy against a limited partner to obtaining a charging order. Such an order permits the creditor to assume the debtor partner’s position with respect to income and distributions but gives the creditor no management or liquidation rights.
Section 703 of the Uniform Limited Partnership Act (1976) provides: “On application to a court of competent jurisdiction by any judgment creditor of a partner, the court may charge the partnership interests of the partner with payment of the unsatisfied amount of the judgment with interest. To the extent so charged, the judgment creditor has only the rights of an assignee of the partnership interest.”
Section 704 of the Uniform Limited Partnership Act (1976) provides: “An assignee of a partnership interest, including an assignee of a general partner, may become a limited partner if and to the extent that (i) the assignor gives the assignee that right in accordance with authority described in the partnership agreement, or (ii) all other partners consent.”
Under R.R. 77-137, a creditor who has obtained a charging order runs the risk of receiving phantom income from the partnership. In R.R. 77-137, an assignee of a limited partnership interest, whom the remaining partners refused to substitute as a partner, was nevertheless responsible for their distributive share of partnership income, gain, loss, deduction, and credit attributable to the assigned interest.
The family partnership is also an estate and income tax planning tool. With a family partnership, a parent can transfer business assets to heirs removing both the assets and their future appreciation from the parent’s estate without giving up control. The partnership can be capitalized with business assets and investment properties that have a high potential for appreciation. Moreover, when a valid partnership exists under §704(e) or the Culbertson rule, only the decedent’s partnership interest is includible in his or her estate under §2033 (B. Craig, DC S.D., 78-2 USTC § 13,252, 451 F.Supp 378; cf. see former §2036(c)).
The family partnership allows the sale or gifting of partnership interests to children and other family members. Older generation partners can manage the business while transferring asset value to the younger generation without unfavorable estate tax results (cf. former §2036(c)).
The family partnership avoids the “double tax” payable if the businesswere a corporation. Moreover, the partnership allows income to beshifted from high-taxed to low-taxed family members. This results in areduction in the total income tax paid by the family as a unit.
A limited liability company (LLC) is an unincorporated business entity, established under state law, in which all owners have limited liability. The primary advantage of an LLC is that, without incorporation, owners are protected from personal liability for debts of the entity. Unlike a limited partnership, where at least one general partner is personally liable, with an LLC none of the personal assets of any of the owners is subject to creditor or tort claims. In addition, with an LLC, limited liability remains whether or not the owner actively participates in the affairs of the business.
Note: No other entity provides all of these benefits. In a general partnership, the partners received pass-through taxation, but are jointly and severally liable for partnership liabilities. In a limited partnership, partners have passthrough taxation, but only limited partners have limited liability. S corporations provide shareholders pass-through of tax attributes, limited liability, and control over the business without risk that management participation will jeopardize limited liability. However, such benefits are available only if restricted eligibility requirements are met.
Retirement plans can be great asset protection devices depending on local state law. Many states exempt private retirement plans from execution or other legal process by judgment creditors (e.g., Calif. CCP §704.115). These provisions typically exempt from judgment creditors all amounts held or controlled by a private retirement plan for payment of retirement benefits. Some statutes even continue the exemption after the amounts are distributed to plan participants. In some protected jurisdictions, a distinction is made between private retirement plans maintained by corporations and self-employed plans maintained by sole proprietors and partners (e.g., Calif. CCP §704.115(e)). Appropriate state law should be consulted.
Note: Corporate plans usually get a full exemption, while IRAs and Keoghs are exempt only for retirement income needs.
While the U.S. Supreme Court has previously held, in Patterson v. Shumate, 112 S. Ct. 2242 (1992), that ERISA qualified plans were exempt from creditors in bankruptcy, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 expanded the bankruptcy protections previously available for a debtor’s retirement funds by providing a new federal exemption for retirement funds held in any of several types of tax-favored plans or accounts.
Custodianship is generally used for holding title on behalf of minors and is based on two uniform acts. The first is the Uniform Gifts to Minors Act (UGMA). This permits adults (often parents) to hold title to bank accounts, insurance, and securities on behalf of minors (their children). The assets that can be held in this manner are restricted. The second is the Uniform Transfer to Minors Act (UTMA). This act permits any property to be held for the minor11.
Both acts simplify family income and gain shifting. They permit a gift to be made to a minor with an adult serving as custodian. Usually, a parent who made the gift is also named custodian12. The custodian is permitted to sell or redeem and reinvest the principal and to accumulate or distribute the income, provided there is no commingling of the child’s income with the parents’ property. The income or gain of the custodianship is taxed to the child, subject to the “kiddie tax” unearned income rules for children under 19 or 24 if full time students.
Custodian accounts under either of the uniform acts should be good asset protection tools assuming completed gifts are made. Even though the custodian can exercise control over the assets in the account, such control is exercised in a fiduciary capacity.
However, in the case of a partnership interest a guardianship may be required. Using the parent as the custodian can be dangerous and result in the funds being included in the parents’ estate on death if the parent can use the custodianship funds to satisfy a support obligation to the child. Caution may suggest that another relative (e.g., grandparent) be used instead.
On an individual’s death, a probate estate will typically be established. While most consider probate a time consuming and expensive process, probate can offer substantial asset protection.
Probate courts have traditionally viewed the protection of spouses and family members as more deserving than that of creditors (Hurlimann v. Bank of America, 141 CA 2d 801 (1956)). Most probate statutes bar creditor claims not filed within the time provided by law. This period is generally 4 to 6 months after the executor is appointed and notice given to creditors. The disadvantage, however, is that your estate must typically give actual written notice to all known creditors to invoke this protection.
Note: Many states permit similar protection for trusts to cut off creditors’ claims against trust assets (e.g., Calif. PC §19000 et seq.). The trustee must publish notice of the grantor’s death and mail notice to known creditors. Those creditors who do not file claims within the appropriate period are barred from collection against trust assets.
Subchapter J of the Code governs the income taxation of estates (and trusts. Estate income is taxed to the estate or to its beneficiaries to the extent they receive income from the estate. This creates a modified conduit principle. Whoever receives the income is liable for the tax. The executor of the estate is responsible for filing Form 1041 and paying any income tax due.