How To Choose Your Executor or Personal Representative

Serving as someone’s executor or personal representative is a HUGE job, and not for the faint of heart.  Although it is commonly considered an honor, there is a lot of work involved, and an executor must have a great capacity for organization, attention to detail, meeting deadlines, and more.  You may be tempted to name your favorite sibling or eldest child just to keep from hurting any feelings, but your family and heirs will not be well served if you choose your executor based on emotion rather than ability.

Keeping this in mind, here are 4 things to consider when choosing your executor or personal representative:

  1. Your executor should be trustworthy. Your executor will be privy to all of your financial secrets: reviewing estate assets, determining your liabilities and paying off creditors, settling outstanding debts, and making distributions to heirs. Chances are you don’t want all that information spread throughout the family or community.
  2. Your executor should be organized. The person you choose will be in charge of a number of detailed tasks, both large and small.  He or she will be making lists of assets, meeting court deadlines, making timely distributions for estate taxes, and more.  Missing or being late for one of these many steps can draw out the entire process, costing your heirs both time and money.
  3. Your executor should be financially savvy. One of the responsibilities of executor is to keep the estate viable (making sure the mortgage and fees continue to be paid) during the probate process. If you have investment accounts you’ll want to ensure they won’t languish and lose their value before they can be distributed to your heirs.
  4. Your executor should have heart. Although probate is a can be a difficult and detailed process, it is at its core about the people you love.  Your executor should have the ability to be caring and compassionate during this emotional time.

If you don’t know anybody you would trust with all of these responsibilities don’t lose faith, there are other options.  You can choose a bank or financial institution as your executor, or you can ask your estate planning attorney to partner with the person you choose as executor—helping them with the difficult tasks and ensuring a smooth probate for all involved.

Take Action in the Face of Estate Tax Uncertainty

If you’ve been reading our blog regularly then you know that the 2010 estate tax repeal has caused no end of confusion and uncertainty; not only for those who have been dealing with probate and trust administration since the tax was first repealed, but also for those who are trying to think ahead and do the right thing for their spouses and children.  Many people have come to the erroneous conclusion that they have no choice but to stand by and wait until the Washington politicians make up their minds about whether or not to restore the estate tax retroactively—but we’re here to tell you that you don’t have to wait to protect your assets and your family.

Forbes.com recently published an article entitled How to Protect Your Family From Estate Tax Uncertainty.  This article suggests that there are a number of steps you can take right now to protect your heirs and your assets, even if you don’t know what changes lawmakers may enact tomorrow or 2 months from now. Their suggestions include everything from working with your estate planning attorney on contingency plans to account for anomalies such as no estate tax or minimum exemptions, to common sense action items such as taking the time now to track your cost basis for assets (to help your executor and heirs determine the change in value for tax purposes.)  The Forbes article also suggests that some people may want to plan to save by giving—taking advantage of the gift tax exemption amounts.

There are always steps you can take to ensure that your estate plan is up to date, our firm can be your compass and your guide; we can help your family prepare for whatever the future may have in store.

Defining Probate

Probate: [from the Middle-English probat, from Latin probatum…] a : the action or process of proving before a competent judicial authority that a document offered for official recognition and registration as the last will and testament of a deceased person is genuine. b : the judicial determination of the validity of a will.

This Merriam-Webster definition of probate doesn’t make it sound so bad.  Quite simply, it is the process by which the court determines the legal property of a person who has died, and decides to whom those assets will be distributed. It sounds like it should be simple… but somehow probate is hardly ever simple. Even in the best of circumstances there are procedures that must be followed to the letter, and the actual process (depending on the size of the estate and the laws of the state in which the property is being probated) can take anywhere from 6 months to a few years!

A good will can go a long way toward keeping the probate process on the short and easy end of the spectrum; but even with a will, much of your probate experience will depend on elements outside your realm of control. There are certain steps that must be followed to complete the probate process, including:

  • the appointment of an executor or personal representative
  • verification of the will
  • taking an inventory of assets belonging to the deceased (which can be very difficult if good records have not been kept)
  • giving notice to creditors
  • paying valid claims against the estate
  • preparing and paying taxes
  • notifying beneficiaries (not all of whom will be easy to find)
  • and eventually distributing the assets to the beneficiaries or heirs

If just reading the above takes your breath away, imagine having to actually go through all of those steps—and possibly more! The good news is that you don’t have to go through it alone, our office can help you navigate the tangled probate maze from beginning to end—from filing the first court documents to protecting your eventual inheritance—ensuring that your probate experience goes as quickly and smoothly as possible.

The Receiving End of Estate Planning

We publish a lot on this blog about preparing your estate plan: writing a will, setting up a trust, choosing beneficiaries and nominating guardians; but there is another side to estate planning, a fun side… the receiving end.

You may assume that the receiving end of estate planning is the fun and easy part, but that is not always the case. Coming into an inheritance presents its own questions and challenges; financial, logistical, and personal.

Financial

Receiving an inheritance always means you have to think about taxes.  Estate taxes, income taxes, property taxes… The estate tax this year is not as clear as it has been in the past, and you will probably want to have an attorney or accountant help you with it.  Whether or not you have help, you will absolutely want to keep paperwork on everything.  This includes paperwork from any transfers of inherited property made by you, as well as any and all of the original paperwork you can find for the inherited assets.

Logistical

There is a lot more to an inheritance than simply getting money and spending it.  Are you the nominated guardian of young children, holding those assets in trust for their benefit?  Or perhaps you are the beneficiary of a trust, and your receipt of the assets is subject to the terms of that trust.  Do you have to use the money for school?  Do you need to approval of a trustee before you can spend it? Hopefully you are working with a trustee you know and trust, but if you and the trustee disagree you may need mediation or even your own attorney.

Personal

Inherited property is almost always very personal and fraught with emotion.  Should you really sell the house grandma lived in for decades and use the money to take a cruise? (If so, wait until after taxes to buy the tickets.) Would your parents have wanted you to use the money to pay for a wedding, or save it for your retirement? Do you want to take the summer home that’s been in your family for generations and own it jointly with your new spouse, or keep the property on your side of the family?

Whatever you choose to do with your inheritance, it’s likely you’ll need some guidance from a knowledgeable and trustworthy professional.  Your estate planning attorney can help.  Our knowledge of the probate system, estate taxes, and creating vehicles to protect your assets can answer your questions regarding the receiving end of estate planning as well as the planning.

10 Tips for Potential (or Existing) Trustees

The creation of a trust and estate plan includes spending a certain amount of time choosing the people who will be your fiduciaries—the people who will carry out your wishes.  One of the most important fiduciaries is your trustee, who is involved in just about every aspect of the administration of your trust. Most people choose someone close to them to serve as trustee: a best friend, son or daughter, brother or sister. Choosing someone who knows you and your family to serve in this role can be beneficial in many ways, but if that person doesn’t have a financial or legal background the responsibilities can be overwhelming!

If you want to give your trustee a head start (or if you’ve been nominated as a trustee and need a little help yourself) this article from the Elder Law Answers website shares “9 Do’s and 1 Don’t” of being a trustee. These suggestions will help a potential or new trustee better understand their responsibilities and the scope of the job to come.  Advice such as #1, “Do read the trust document”; or #3, “Do keep the best interests of the beneficiaries in mind at all times” may seem obvious now, but it’s not always so clear when you’re beset by insistent and emotional relatives.  The more technical tips such as #2, “Do create a checking account for the trust”; and #9, “Do file income tax returns for the trust” are invaluable starter-steps for someone who has never done this before.

But the most important tip to remember is the one don’t: #10, “Don’t fly solo. Get professional advice to make sure you are correctly fulfilling your role.” If you or the people you’ve chosen as your trustee are ever in doubt, please don’t hesitate to call our office for help.

Test Your Knowledge: An Estate Planning Quiz

How much do you know about estate plans?  And how do you know when you need one?

Many people have a vague feeling that they should execute some kind of estate plan eventually, but think (hope) that they really don’t need one right now. On our blog we spend a lot of time telling people that they do need an estate plan, and they probably need one right now—or yesterday!—and we hope we do a good job of explaining why you need one.  But maybe it’s time for you to decide when the time is right.  This quiz will help you determine just when (and if) you need to do some estate planning.

1. Do you own a house?

Owning your own home means you have at least one significant asset, which affects your need for planning in a number of ways: First, a piece of property cannot be split between people, it will have to be sold (which can take months or even years) and the proceeds divided among your heirs—often at a loss, especially if the house was undervalued to sell quickly. Second, many people who feel they have “small estates and won’t have to worry about Probate or the estate tax” are surprised when they find that the value of their home does indeed push their estate over the line. Third, if you are married you may need to make provisions for your spouse if you would like them to be able to continue to live in your home.

2. Do you have minor children?

If you have minor children and have not made provisions for them in case of your death or incapacity the government will be in charge of their futures. This could mean your children are put in the care of foster parents or become wards of the state.  That is not a chance you want to take.

3. Do you want your heirs to have to wait months (or years) before receiving an inheritance that is only a percentage of what you left them?

Probate is a long and expensive process.  Without a plan in place your assets will have to be probated before they can be distributed. Not only does this often take years, but the probate fees (which can be considerable) are taken out of your estate—leaving less for your heirs.

4. Do you know how you want to spend your final moments?

Most people don’t die quickly and quietly at the ripe old age of 98.  Most people fall victim to accidents, illness or dementia—unable to make their own health care decisions. Without a healthcare directive or living will that specifically outlines your wishes and instructions for your health care and nominating an agent to carry out those wishes, you could end up in a Terri Schiavo situation—costing your loved ones both financially and emotionally.

(NOTE: There is much that goes into your estate plan decision-making; this is only a partial quiz, and not a planning tool. Please contact our office for more information and an in depth interview to determine what kind of planning will be best for you and your family.)

Executors Have Options When It Comes to Final Medical Expenses

Most people die in a hospital; sometimes after a long and slow decline, sometimes after a quick and unexpected tragedy.  If you are an executor of the deceased’s estate this is significant because it means that there are usually final medical bills to be paid. What most executors do not know is that these final medical bills are not necessarily just like all the other final expenses, especially when it comes to filing a final tax return for the estate; this article from The Wall Street Journal  explains why.

“…When a person incurs medical expenses and dies before they are paid, the executor of the decedent’s estate can elect to treat those medical expenses as if they were paid when incurred – as long as the estate pays the expenses within one year after the date of death. In other words, this election allows those expenses to be deducted on the decedent’s final Form 1040, even though they were not paid by the date of death.”

Many executors may not think of this because medical expenses can only be deducted if they exceed a certain percentage of the deceased’s adjusted gross income (7.5% to be exact); but health care being what it is, final medical expenses can quite often reach this point.

This sounds easy, but be careful if the deceased’s estate exceeds the $3.5 million estate tax exemption—you may want to look into other options.  The Wall Street Journal suggests that in this case it might be beneficial to “forgo the election and count the unpaid medical expenses as liabilities on the estate tax return.”

As the executor of an estate you may have more options than you are aware of when it comes to taxes, probate, and achieving the best results for the beneficiaries.  If you are unsure, contact a professional who can help advise you on all angles of the trustee or probate process.

What To Do If You Suspect Foul Play

The movies have given people certain expectations when it comes to a death in the family and probating a will; this Hollywood portrayal includes an attorney, a book-lined office, and the entire family assembled for a formal reading of the will which ends in shocked gasps as the entire fortune goes to an unknown and unlikely character. Inevitably, there is some intrigue surrounding a possible forgery of the will. 

This Hollywood portrayal may be completely off base, but the basic premise is based on the very real feelings that come with the death of a loved one: helplessness, confusion, familial bonds, and sometimes even betrayal. Forged or secret wills may not be as common as the movies may have us believe, but as recent events and this article in the Wall Street Journal reveal, they aren’t completely unheard of either.

So what should you do if you suspect that the will of a loved one has been forged or tampered with? First of all, don’t try to deal with the situation alone. Dealing with the death of a loved one is stressful and emotional, and everyone—including you—is likely to be quicker than usual to react without thinking. Instead, seek the advice of a trusted third party, someone who can help you distance yourself and look at the situation objectively.

As mentioned in the article above, will forgeries are very rare, but incidents of testators (especially elderly testators) being unduly influenced are sadly not rare enough.  If you suspect foul play was involved in the creation of a loved one’s will, make an appointment with an estate or probate specialist.  We can help you work through your suspicions in a safe environment and explore your options should you feel the need to take action.

Keeping Financial Stability After the Loss of Your Spouse

Losing a spouse is one of the most difficult experiences life has to offer. Even continuing to take one day at a time seems almost impossible when you’ve lost your partner, your mate, the love of your life.  Many people who have lost a spouse describe feeling as though the rug has been pulled out from under their feet; they feel like a child again, having to re-learn how to interact in the world without their other half.

The emotional loss is only part of this confusion, especially if—like most partnerships—you and your spouse ran your household and finances with a division of labor, each partner taking on the responsibilities that they most enjoyed and were most suited to perform… this includes the financial responsibility.  The emotional impact of losing a spouse is hard enough, but in today’s complex financial world what do you do if the spouse you’ve lost was the family CFO?

The first and most important step, according to this article from the Chicago Tribune, is organization.  Knowing what your balance is, what your expenses are, and where important documents are located is absolutely key to getting through the rough patches.  The second step—and this one may be the hardest—is taking stock of your new financial situation and adjusting your lifestyle and spending. Losing a portion of your family’s income is a shock, and people often go through the motions of their previous lives because they simply can’t yet face the reality of their loss.  In addition, death comes with its own set of expenses which can make a substantial dent in your savings. 

If you feel you just don’t have the strength or focus to deal with financial issues immediately following the death of your spouse ask someone to help you temporarily.  Eventually, when the grieving process has run its course, you will surface again; and when that happens you don’t want to find that the life you knew has been buried under debt.

Joint Tenancy Does Not Replace a Will

Many people think that owning property in joint tenancy means they don’t have to create a will or estate plan. Why bother with a will when all the property is going to your joint tenancy partner anyway? In fact (some people may ask) why not do away with the need for a will altogether and hold property in joint tenancy with my children? The answer to that question is that although joint tenancy may allow your heirs to avoid probate, it carries with it a number of problems and is NOT a replacement for a well-executed will or estate plan.

One of the primary problems with owning property in joint tenancy with your children is that, in the words of Phil Craig in his article Joint Tenancy: How Not to Avoid Probate, “Joint tenancy sure is easy to create, but sure is hard to end.” As Craig illustrates in his article, owning property jointly with your children may seem harmless at first, but what happens if your child gets married or divorced, gets sued, or even joins a cult?

Beyond the essential question of ownership, joint tenancy as an estate planning method falls short in numerous other ways as well; owning property in joint tenancy with your children does not do anything to minimize your estate taxes—In some ways it may actually increase your taxes. Additionally, owning property in joint tenancy with more than one of your children prohibits the other owners from leaving their share of the property to their own heirs.

Finally, even as husband and wife, holding property in joint tenancy has its dangers. If one of you were to become incapacitated or mentally incompetent, the other would have to obtain a conservatorship from the court before being able to sell or take any other legal action with the property. Having the ability to sell or refinance quickly could become a necessity when medical bills are piling up. Look into owning your home as community property instead.

There are ways to avoid making probate a necessity after your death, but joint tenancy—while it may be quick and somewhat easy to achieve—is neither a quick nor easy solution to probate. Take the time to create a quality will or estate plan. Your assets will be protected in the long run, and your heirs will thank you in the end.