American Bar Association 2023 Midyear Tax Meeting

It is with great honor that the American Bar Association asked Law Stein Anderson to present at the 2023 Midyear Tax Meeting. Zebulon Law, Esq. LL.M., CPA, and Monique Nevarez, Esq. represented Law Stein Anderson on the panel to speak about federal and state compliance issues involving complex trusts & fiduciary income tax. In this video, you’ll meet our two-panel members.

Zeb Law has been an estate attorney for 30 years and is a partner at Law Stein Anderson. Also, he has been an adjunct professor at Chapman University Fowler School of Law. Notably, he has been published in numerous legal publications and is a frequent speaker in various areas of law. His practice areas include estate planning, trust and business litigation, and business and tax planning.

Monique’s knowledge of the ever-changing and complex state tax laws makes her a favorite with her clients. She works with families on wealth transfers involving trusts, succession planning, charitable contributions, and tax-exempt private foundations. Indeed, she patiently demonstrates to families how her tax planning techniques will benefit them now and their heirs after they are gone.

Incapacitated Tax Payer

Sometimes there is a trust where one or more parties have diminished capacity. Incapacitation is a judicial determination that a person is without understanding or is of unsound mind. However, the duty to report tax for an incapacitated tax payer goes on.

Who Signs the Return, and How Does It Get Filed?

Look to the trust. A trustee for an incompetent or incapacitated taxpayer will sign their name for the individual and file Form 56, Notice Concerning Fiduciary Relationship.

Incapacitated Client

In the case of an incapacitated client, most states allow the lawyer to take legal action, like filing a conservatorship. For example, if the client is going to suffer substantial tax penalties by not filing a return, the attorney might be able to get the conservatorship filing started. However, there is a continued debate in California as to what the attorney-client relationship should look like after the client becomes incompetent.

Only certain people are authorized to deal with the IRS. In particular, these people must be an attorney-in-fact under a power of attorney, an attorney or CPA. Additionally, other individuals who have a special relationship with the taxpayer, like a member of the immediate family are authorized. For this reason, it is a good idea for clients to have a durable power of attorney giving the attorney-in-fact the authority to file tax returns. Namely, the Uniform Power of Attorney Act authorizes the agent to prepare, sign, and file federal, state, and local taxes.

Who Signs the Return?

If the spouse can’t sign because of injury or disease and tells the taxpayer to sign for them, the taxpayer can sign the spouse’s name on the return. Importantly, a dated statement must be attached to the return explaining the reason. A court-appointed conservator, guardian, or trustee, can sign their name for the incapacitated individual.

Should the Corporate Trustee File Form 56?

Yes. Form 56 should be filed by a fiduciary to notify the IRS of creating or terminating a fiduciary relationship.

Check out the next part of our series to learn about the fiduciary duties of trustees.