Ask the Experts: Answers on taxes and trusts

Here's a roundup of questions posed online at The Bee's "Ask the Experts" forums. To post your own questions or read those that have already been answered, go to www.sacbee.com/ask.

Bill Steiner, IRS tax expert

Q: Every January, I usually get a big packet from the IRS with my estimated tax payments and vouchers. This year, it never arrived. I talked with someone else who never received his, either. Is this a problem? Or does it mean we probably don't owe federal taxes ?

A: The IRS sent out approximately 16.5 million 1040 tax packages by mail to taxpayers in January who had filed paper tax returns. The most common reasons for not receiving a package are that you changed addresses or filed electronically last year, either using software or with a tax preparer.

Don't assume that because you didn't get a tax package you don't have to file a tax return. If you are not interested in electronic filing, you can download the tax forms you need from the IRS Web site (www.irs.gov), order by phone at (800) 829-3676 or make copies at your local library. In the meantime, since we are two days away from the filing deadline, you should file by Tuesday for an extension, using IRS Form 4868, and pay whatever tax you think you may owe on your 2007 tax return.

Jeffrey Lambert, financial planning

Q: I'm a single, 30-year-old woman who is excited to be going back to school full time to become a nurse. By the time school begins in June, I will have saved enough to meet my share of student expenses (the rest will be covered by grants, scholarships and loans). However, I just discovered I must have some expensive dental work done immediately. Do I use some of the cash (about one-third of my savings) that was earmarked for school? Or is it better to get a loan from a family member or use a low-interest credit card to pay for my dental expenses?

A: Congratulations on nursing school. In general, use debt for things that increase in value, such as an education or home purchase. Credit card debt is not advisable for students unless you can pay it off when the monthly statement comes.

Only borrow if you know you can make payments when due. A loan from a family member can be a good option if the terms are clear, and you both can live with the potential ramifications. Ask your dentist for terms. Or a community organization might have a program that could help you.

To manage your cash flow, pay your bills on time, but no earlier than you must (including tuition). For most of us, long-term financial success comes from investing in our careers, economizing and managing cash flow.

Trudy Nearn, estate planning

Q: My parents lived in Oregon and had a signed revocable living trust prepared for them by a lawyer in December 2003. My father passed away suddenly in March 2004, and we were informed by the same attorney that the trust was never funded, meaning the assets were never transferred into the trust.

My mother died this last August and, because of the error on the trust, my siblings and I must pay some hefty taxes. My question: Who is ultimately responsible for ensuring that a trust is funded, the attorney or the client?

A: I am very sorry to hear that all of your parents' affairs were not in order. You've experienced a problem that is all too prevalent – people forming a trust and then not having it properly funded, which entails putting all the assets (property, stocks, etc.) into the name of the trust in order to avoid probate. Some estate planning attorneys do not assist with any of the funding, some help a client fund only a few assets (such as the house), and others believe that getting all your assets funded into your trust is essential and will do that for you.

If those assets are not retitled in the name of the trust, they are not shielded from going through the costly probate process.

In California, under certain circumstances, there is a mechanism for putting assets into a trust after the death of the trustors without going through probate. You may want to ask the Oregon attorney about this.

Q: My mother's trust was distributed several years ago. The IRS now wants additional money in taxes. Who is legally responsible for this payment? My brother, who was the executor, or everyone who received a part of the estate? The IRS amount is gaining penalties and late fees. Please help!

A: Our advice to all trustees is that they do not distribute the estate's assets until they are 100 percent confident that all outstanding claims have been paid because they could be held personally liable for any unpaid claims. This is particularly true of any IRS debts. In general, an IRS lien has top priority over all other creditors. The IRS can pursue both the trustee and the beneficiaries for payment. I suggest you make resolving this IRS claim a priority.