Preparing for an Estate Planning Meeting

Preparing to meet with an estate planning attorney for the first time is an opportunity to get organized and think about your wishes for the future. If you meet with your accountant every year to prepare tax returns, this may be a familiar process. It’s a chance to step away from day-to-day activities and focus on your life, as described in a recent article “Preparing for an Estate Planning Consultation: 10 Items to Consider Before Meeting Your Attorney” from The National Law Journal.

Minor Children Need Guardians and Conservators. In most states, families with minor children need a last will to designate one or more guardians to raise the children in the event both parents die. A successor should be named in case the first named guardian is unable or unwilling to serve. Discuss your decision with the people you are naming; don’t leave this as a surprise. Choosing these people is a hard decision. However, don’t let it be a reason to delay creating your estate plan. It’s better that you name a guardian, rather than let the court make that decision.

Agents, Trustees, and Power of Attorney. With a Durable Power of Attorney, your assets can be managed by a named agent, if you become incapacitated. The person who manages your estate after death is the executor. They are named in your last will. If you have trusts, the documents that create the trust also name the trustees. It is possible for one person to act as a fiduciary for all of these roles, although the tasks can be divided.

Living Will and Patient Advocate Designation. If you are incapacitated, a Patient Advocate can make medical decisions on your behalf, including following the instructions of your Living Will.

Personal Property. Any items of personal property, whether their value is sentimental or monetary, should be specified in the will. A list of items and who you want to receive what, may spare your heirs from squabbles over your personal effects, large or small. If you own a business or real estate, they also need to be addressed in your will.

Charitable Donations. If you are charitably minded, your will is one way to make bequests and build a lasting legacy. Charitable donations can also be made to gain tax benefits for heirs.

Beneficiary Distributions. The beneficiary designation is the unsung hero of the estate plan. By managing beneficiary designations while you are living—updating beneficiary designations, assigning beneficiary designations to all accounts possible—you take assets out of your probate estate and smooth the asset distribution process. However, there are some wrinkles to consider.

Minor children may not receive assets until they become of age—18 in most cases. Do you want your children (or nieces or grandchildren) to receive an inheritance, while they are still in their teens? Proper estate planning includes trusts created, so a responsible adult can manage the trust on their behalf. Your trust can also be structured so the money may only be used for college expenses, or when the children reach certain ages.

Surviving Pets. You can plan for your pet’s care, if you pass away or become incapacitated before they die. Most states permit the creation of a pet trust, an enforceable means of providing assets to be used for the care and well-being of your pet.

Your estate planning attorney will be able to provide you with a list of the documents she will need to get started on your estate plan, but these are the major issues that you will be discussing at your first meeting.

Reference: The National Law Journal (Feb. 23, 2021) “Preparing for an Estate Planning Consultation: 10 Items to Consider Before Meeting Your Attorney”

Will I Get A Bill as My Inheritance?
Inheritance paper note on hundred dollar bills

Will I Get A Bill as My Inheritance?

When someone dies and leaves debts, you may ask if you have any personal liability to pay them. The answer is typically no, even though those debts don’t automatically disappear. However, there are situations in which you may have to address issues with a loved one’s creditors after they are gone, says KAKE’s recent article entitled “Can I Inherit Debt?”

The responsibility for ensuring the estate’s debts are paid, is typically that of the executor. An executor performs several tasks to wrap up a person’s estate after death. They include:

  • Obtaining a copy of the deceased’s will, if they had one, and filing it with the probate court
  • Notifying creditors and other entities of the person’s death (like the Social Security Administration to stop benefits)
  • Creating an inventory of the deceased’s assets and their value
  • Liquidating assets to pay off any debts owed by the estate; and
  • Distributing the remaining property to the individuals or organizations named in the deceased’s will (if they had one) or according to inheritance laws, if they didn’t.

In terms of debt repayment, executors must notify creditors who may have a claim against the estate. Creditors are given a set period of time to make a financial claim against the estate’s assets for repayment of debts. It’s not that uncommon for a disreputable creditor to attempt to get paid by the deceased’s relatives.

Any assets in the estate that have a named beneficiary, such as a life insurance policy, a 401(k), individual retirement account, payable on death accounts or annuity, would be transferred to that beneficiary automatically and cannot be touched by creditors.

You typically don’t inherit debts of another like you might inherit property or other assets from them. Thus, if a debt collector tries get money from you, you’re under no legal obligation to pay.

However, if you cosigned a loan with the deceased or opened a joint credit card account or line of credit, those debts are legally yours, just as much as they are the person who died. If they pass away, you’d be solely responsible for repaying them.

You should also know that you may be liable for long-term care costs incurred by your parents, while they were alive. Many states require children to cover nursing home bills, although they aren’t always enforced.

As for spouses, the same rules of debt responsibility apply. However, for debts that are in one spouse’s name only, it’s important to understand how living in a community property state can impact your liability for marital debts. If you live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin), debts incurred after the marriage by one spouse can be treated as a shared financial obligation.

Reference: KAKE (December 2, 2020) “Can I Inherit Debt?”

 

What Kind of Estate Planning Do I Need During the Pandemic?

Having a valid will and a complete estate plan is important for everyone, but it’s crucial as you approach retirement.

Richmond Times-Dispatch’s recent article entitled “Estate planning during the pandemic” says that it’s because you’ll probably have more assets at this stage of your life, and it’s important to consider whom you’d like to inherit.

It is critical that you plan to be sure your spouse and family will be cared for financially, in the event that something happens to you. This can be accomplished with proper estate planning with the help of an experienced estate planning attorney.

If you die without a will or estate plan, state probate laws of succession may direct the way in which your assets are distributed. This can be an expensive process, but it can also be a significant burden on your family during a time of grieving and sadness.

Even with a will, going through the court-supervised probate process of passing assets through a will can be time consuming and expensive.

One way to avoid probate is to ask an experienced estate planning attorney to help you set up a trust. A frequently used trust is a revocable living trust, which lets you modify the terms if you like.

Individuals with children or real estate can particularly benefit from setting up a trust. A trust allows you to avoid probate and makes certain that your assets are transferred to the intended people. It also lets you control exactly how the money can be used. You can also name someone to take control when you’re not available, known as a secondary trustee.

The executor of a will is really an administrator who transfers assets from one person to another. In contrast, a trustee is more of a decision-maker who will take your place and make decisions you would want to make, if you were still around to make them.

After you set up your estate plan, you should review it every few years.

Reference: Richmond Times-Dispatch (Nov. 19, 2020) “Estate planning during the pandemic”

How Much Power Does an Executor Have?

The Pauls Valley Daily Democrat’s recent article entitled “It doesn’t end with the will” explains that there’s constant confusion about wills. This misunderstanding involves the scope of power of those named in the will as the personal representative (or executor) of the decedent’s estate. Let’s try to straighten out some of these myths or pieces of bad information about wills and probate.

The Executor Doesn’t Need Court Permission. False. An estate executor or personal representative can’t distribute a decedent’s assets to themselves or to any heirs, until okayed by the court. Many people think that a will provides immediate authorization to distribute the assets of an estate.

If He had a Will, We Don’t need Probate. Another incorrect belief is that if a person dies with a will, probate isn’t needed or required. If a person has a will, the will and the distributions named in it can only be made valid by the probate court. There are ways to avoid the probate process. However, the fact that a person had a will doesn’t do it.

The Executor Can Start Giving Away Stuff ASAP. This is also false. Some people think that as soon as a person receives appointment as the personal representative or executor from the probate court, they can begin distributing assets from the decedent’s estate. Nope. If this were true, it would defeat the objectives of probate, which is court oversight and control.

The Court Doesn’t Monitor the Executor’s Actions. This statement is also incorrect. The entire probate process is structured to provide a court monitored coordination of a decedent’s estate to make certain that his or her wishes are followed. This also helps to prevent unauthorized distributions or “raids” on a decedent’s assets by improper persons.

Remember, the executor’s Letters Testamentary authorize that person to act for the estate—they don’t permit any distributions before court approval or final probate court order.

What Does Probate Do? Probate fulfills these purposes:

  • At death, the deceased’s property is subject to control and monitoring by the court.
  • The court then starts to see what the decedent’s wishes were for distribution and who was named to administer the estate.
  • The court must also review the scope of the estate, define all assets in the estate and determine all debts of the estate.
  • Probate requires a notice to creditors, so the executor has a complete list of debts of the estate and to give each creditor the opportunity to be paid.
  • The court watches any transfers, sales of assets or payments during probate.
  • The executor is authorized to receive money and manage the assets of the estate, but he can’t withdraw or transfer assets from the estate.
  • At a final hearing and after notice to interested parties, the court determines who should get distributions.

Ask an experienced estate planning attorney about the probate process and how to devise a complete estate plan.

Reference: Pauls Valley Daily Democrat (Oct. 1, 2020) “It doesn’t end with the will”

What’s Involved in the Probate Process?

SWAAY’s recent article entitled “What is the Probate Process in Florida?” says that while every state has its own laws, the probate process can be fairly similar. Here are the basic steps in the probate process:

The family consults with an experienced probate attorney. Those mentioned in the decedent’s will should meet with a probate lawyer. During the meeting, all relevant documentation like the list of debts, life insurance policies, financial statements, real estate title deeds, and the will should be available.

Filing the petition. The process would be in initiated by the executor or personal representative named in the will. He or she is in charge of distributing the estate’s assets. If there’s no will, you can ask an estate planning attorney to petition a court to appoint an executor. When the court approves the estate representative, the Letters of Administration are issued as evidence of legal authority to act as the executor. The executor will pay state taxes, funeral costs, and creditor claims on behalf of the decedent. He or she will also notice creditors and beneficiaries, coordinate the asset distribution and then close the probate estate.

Noticing beneficiaries and creditors. The executor must notify all beneficiaries of trust estates, the surviving spouse and all parties that have the rights of inheritance. Creditors of the deceased will also want to be paid and will make a claim on the estate.

Obtaining the letters of administration (letters testamentary) obtained from the probate court. After the executor obtains the letter, he or she will open the estate account at a bank. Statements and assets that were in the deceased name will be liquidated and sold, if there’s a need. Proceeds obtained from the sale of property are kept in the estate account and are later distributed.

Settling all expenses, taxes, and estate debts. By law, the decedent’s debts must typically be settled prior to any distributions to the heirs. The executor will also prepare a final income tax return for the estate. Note that life insurance policies and retirement savings are distributed to heirs despite the debts owed, as they transfer by beneficiary designation outside of the will and probate.

Conducting an inventory of the estate. The executor will have conducted a final account of the remaining estate. This accounting will include the fees paid to the executor, probate expenses, cost of assets and the charges incurred when settling debts.

Distributing the assets. After the creditor claims have been settled, the executor will ask the court to transfer all assets to successors in compliance with state law or the provisions of the will. The court will issue an order to move the assets. If there’s no will, the state probate succession laws will decide who is entitled to receive a share of the property.

Finalizing the probate estate. The last step is for the executor to formally close the estate. The includes payment to creditors and distribution of assets, preparing a final distribution document and a closing affidavit that states that the assets were adequately distributed to all heirs.

Reference: SWAAY (Aug. 24, 2020) “What is the Probate Process in Florida?”

Why Should I Think about My Death?

Planning for the end of life isn’t about you, says NPR’s recent article entitled “End-Of-Life Planning Is A ‘Lifetime Gift’ To Your Loved Ones.” As the owner of the estate, you really don’t get to see the benefit of your estate planning. The NPR article gives us some easy and practical steps to planning for the end of life.

Name your executor. If you’re an adult, you should have a last will. This is because estate planning isn’t just for the rich. With a last will, you name an individual you trust to take care of everything when you die. That is the executor or personal representative. It’s a good idea to choose someone from your family or a person with whom you have a good relationship. This person also should have a good attention to detail, because an executor would have to locate all your financial assets and communicate with everyone you’ve named in your last will.

Conduct an inventory. Create a list of everything you own. This includes financial assets—such as bank accounts, retirement savings or car—as well as things that have sentimental value, like jewelry, furniture and mementos. Once this is done, specify in writing those persons you want to have these items. If you have young children, designate a guardian for their care, in case you and your spouse are no longer alive. This person will be responsible for your child’s schooling, health care decisions and value system. Digital accounts are also part of your property, such as your social media accounts, online photos, and whatever is in your Google Drive or iCloud. This also includes any online subscriptions and airline or credit card rewards. Create a secure list of all those accounts and the login and password details. Let your executor know where to find it. Make specific instructions about what you’d like to have happen with your online information.

Your decisions will change over time, so review and update your last will.

Think about your health care decisions. Your last will addresses what happens after you die. However, an advance directive is a legal document that addresses your health care and protects your wishes at the end of your life. There are two parts to an advance directive: a medical power of attorney, which is granted to someone to make decisions for you if you’re incapacitated; and a living will, in which you detail how you should be cared for by healthcare professionals.

Remember the emotional and spiritual aspects of death. The way in which you want to die is personal and about much more than just the medical aspect. It may be about being at peace with God or having your pets nearby.

Plan ahead to give you and your family peace of mind.

Reference: NPR (June 30, 2020) “End-Of-Life Planning Is A ‘Lifetime Gift’ To Your Loved Ones”

What Should I Keep in My Safety Deposit Box?

A safe deposit box isn’t a smart choice for everything. Kiplinger’s recent article entitled “9 Things You’ll Regret Keeping in a Safe Deposit Box” advises that there are some items you might not want to lock up in your bank, which isn’t open nights, holidays, or weekends. zin this pandemic, hours of operation for many businesses are reduced. In fact, some financial institutions, like Bank of America, have temporarily closed some locations. There are other banks that require an appointment for in-branch services, like accessing your safe deposit box. This would create a headache for you in your attempt to retrieve important documents or items when you need them.

Here are some important items you should store elsewhere, because you’ll need to access more often or on short notice. Maybe they should be in a fireproof safe that’s secured to the floor in your home.

Cash. Keeping a wad of cash in a safe deposit box, isn’t a good idea because if you need it in a pinch and the bank is closed, you’re out of luck. In addition, that cash will lose its buying power over time because of inflation and some banks don’t allow cash in a safe deposit box. Finally, cash in a safe deposit box isn’t protected by the FDIC. To have FDIC insurance (covering up to $250,000 per depositor per insured bank), your cash needs to be deposited in a qualifying deposit account, such as a checking account, savings account, or CD.

Your Passport. OK, most of us don’t need your passport in hand at a moment’s notice. However, you may need to take an emergency trip, which will happen during non-banking hours. Without your passport handy, there’s not much you can do about those calls in the middle of the night requiring you to dash.

The Original Copy of Your Will. You may want to keep a copy of your own will, your spouse’s and any in which you’re named the executor in a safe deposit box. However, don’t store the original copy of your will there, particularly if you’re the only owner of the safe deposit box. That’s because after your death, the bank will seal the safe deposit box, until your executor can prove she has the legal right to access it. This could mean a long and potentially expensive delay before your will is executed and your assets can be disbursed to the intended heirs. Keep the original copy of your will with your estate planning attorney or in a location where your executor can get to it without any legal hassles.

Letters of Instruction. Many people write a letter of instruction to accompany their will. This letter can describe whether you want to be buried or cremated and the type of service you want. This letter can include details on specific bequests of sentimental items, but it’s no help if its’ locked in your safe deposit box.

Durable Power of Attorney (POA). This document gives a trusted friend, family member, or professional adviser the authority to financial make decisions on your behalf. However, if your POA is in a safe deposit box that no one can access, the person you’re depending on to protect you at your time of need could find her hands tied. Keep the original POA with the original copy of your will and give copies to those who may need it one day.

Advance Directives. A living will and a health care proxy are sometimes collectively known as advance directives, but each has a unique purpose. A living will states your wishes for end-of-life care, and a health care proxy (also known as a health care power of attorney) names a person to make medical decisions for you, if you can’t make them yourself. Neither is any good locked away in an inaccessible safe deposit box.

Uninsured Jewelry and Collectibles. Heirloom jewelry and your valuable stamp collection and rare coins are good candidates for a safe deposit box, but they must be properly insured. The FDIC doesn’t insure safe deposit box contents, and neither does the bank, unless it’s stated in your agreement.

Any Illegal or Dangerous Items. Your bank should provide you with a list of items that are not permissible to keep in a safe deposit box. This will include things like firearms, illegal drugs and hazardous materials.

Reference: Kiplinger (June 1, 2020) “9 Things You’ll Regret Keeping in a Safe Deposit Box”

How Bad Will Your Estate’s Taxes Be?

The federal estate tax has been a small but steady source of federal revenue for nearly 100 years. The tax was first imposed on wealthy families in America in 1916. They were paid by families whose assets were previously passed down through multiple generations completely and utterly untaxed, says the article “Will the government tax your estate when you die, seizing home and assets?” from The Orange County Register.

The words “Death Tax” don’t actually appear anywhere in the federal tax code, but was the expression used to create a sympathetic image of the grieving families of farmers and small business owners who were burdened by big tax bills at a time of personal loss, i.e., the death of a parent. The term was made popular in the 1990s by proponents of tax reform, who believed that estate and inheritance taxes were unfair and should be repealed.

Fast forward to today—2020. Will the federal government tax your estate when you die, seize your home and everything you had hoped to hand down to your children? Not likely. Most Americans don’t have to worry about estate or death taxes. With the new federal exemptions at a record high of $11,580,000 for singles and twice that much for married couples, only very big estates are subject to a federal estate tax. Add to that, the 100% marital deduction means that a surviving spouse can inherit from a deceased spouse and is not required to pay any estate tax, no matter how big the estate.

However, what about state estate taxes? To date, thirteen states still impose an estate tax, and many of these have exemptions that are considerably lower than the federal tax levels. Six states add to that with an inheritance tax. That’s a tax that is levied on the beneficiaries of the estate, usually based upon their relationship to the deceased.

Many estates will still be subject to state estate taxes and income taxes.

The personal representative or executor is responsible and legally authorized to file returns on a deceased person’s behalf. They are usually identified in a person’s will as the executor of the estate. If a family trust holds the assets, the trust document will name a trustee. If there was no will or trust, the probate court will appoint an administrator. This person may be a professional administrator and likely someone who never knew the person whose estate they are now in charge of. This can be very difficult for family members.

If the executor fails to file a return or files an inaccurate or incomplete return, the IRS may assess penalties and interest payments.

The final individual income tax return is filed in just the same way as it would be when the deceased was living. All income up to the date of death must be reported, and all credits and deductions that the person is entitled to can be claimed. The final 1040 should only include income earned from the start of the calendar year to the date of their death. The filing for the final 1040 is the same as for living taxpayers: April 15.

Even if taxes are not due on the 1040, a tax return must be filed for the deceased if a refund is due. To do so, use the Form 1310, Statement of a Person Claiming Refund Due to a Deceased Taxpayer. Anyone who files the final tax return on a decedent’s behalf must complete IRS Form 56, Notice Concerning Fiduciary Relationship, and attach it to the final Form 1040.

If the decedent was married, the widow or widower can file a joint return for the year of death, claiming the full standard deduction and using joint-return rates, as long as they did not remarry in that same year.

An estate planning attorney can help with these and the many other details that must be taken care of, before the estate can be finalized.

Reference: The Orange County Register (March 1, 2020) “Will the government tax your estate when you die, seizing home and assets?”

How Can I Move On after a Loved One Dies?

Kiplinger’s recent article entitled “Moving Forward Financially After the Loss of a Loved One” says that there really are no rules about how you should feel or how long it will take you to regain your energy and ability to move forward. Grief is difficult to avoid, but there are many financial and legal tasks that will require your immediate attention. Here are some of the actions that can ease this process and help you to get back on track financially.

Here’s a breakdown of what you will need to address in the near future:

  • Gather important information, such as the deceased’s Social Security number, birth certificate, marriage certificate and military discharge papers.
  • Obtain at least 10 copies of the death certificates, because each claim will need to have an original copy of the death certificate attached.
  • Inform the Social Security office about the death and file a Social Security benefits claim form to qualify for the death benefit.
  • Find the title to any automobiles
  • Print out up-to-date statements for bank, brokerage and retirement accounts.
  • The executor should file the deceased’s will (if there is one) with the Probate Court.
  • The executor should obtain letters testamentary from the court.
  • File a death claim with the deceased’s life insurance company, if applicable.
  • Contact the Employer’s Benefits department about survivorship pension, health insurance, unpaid salary and life insurance benefits, if applicable.
  • Prepare a preliminary monthly budget and income summary.

You should seek the advice of an experienced estate planning or probate attorney. You should also retitle any joint accounts into your name and transfer any inherited IRA into your name and take out a required minimum distribution (RMD), if applicable. New beneficiaries should also be named and deeds for any real estate jointly held with rights of survivorship updated.

You need to file a federal estate tax return within nine months.

Don’t face these challenges alone. Contact an experienced estate planning lawyer for help.

Reference: Kiplinger (Jan. 8, 2020) “Moving Forward Financially After the Loss of a Loved One”

What Should I Know About Being an Executor?

You’re named executor because someone thinks you’d be good at collecting assets, settling debts, filing estate tax returns where necessary, distributing assets and closing the estate.

However, Investopedia’s article from last summer, “5 Surprising Hazards of Being an Executor,” explains that the person named as an executor isn’t required to accept the appointment. Prior to agreeing to act as an executor, you should know some of the hazards that can result, as well as how you can address some of these potential issues, so that being an executor can run smoothly.

  1. Conflicts with Co-Executors. Parents will frequently name more than one adult child as co-executor, so they don’t show favoritism. However, for those who are named, this may not work well because some children may live far way, making it difficult to coordinate the hands-on activities, like securing assets and selling a home. Some adult children may also not have the financial ability to deal with creditors, understand estate tax matters and perform effective accounting to satisfy beneficiaries that things have been properly handled. In addition, multiple executors mean additional paperwork. Instead, see if co-executors can agree to allow only one to serve, and the others will waive their appointment. Another option is for all of the children to decline and allow a bank’s trust department to handle the task. Employing a bank to serve instead of an individual as executor can alleviate conflicts among the children and relieves them from what could be a very difficult job.
  2. Conflicts with Heirs. It’s an executor’s job to gather the estate assets and distribute them according to the deceased person’s wishes. In some cases, heirs will land on a decedent’s home even before the funeral, taking mementos, heirlooms and other valuables. It’s best to secure the home and other assets as quickly as possible. Tell the heirs that this is the law and share information about the decedent’s wishes, which may be described in a will or listed in a separate document. This Letter of Last Instruction isn’t binding on the executor but can be a good guide for asset disbursements.
  3. Time-Consuming Responsibilities. One of the major drawbacks to be an executor is the amount of time it takes to handle responsibilities. For example, imagine the time involved in contacting various government agencies. This can include the Social Security Administration to stop Social Security benefits and, in the case of a surviving spouse, claim the $255 death benefit. However, an executor can permit an estate attorney to handle many of these matters.
  4. Personal Liability Exposure. The executor must pay taxes owed, before disbursing inheritances to heirs. However, if you pay heirs first and don’t have enough funds in the estate’s checking account to pay taxes, you’re personally liable for the taxes. Explain to heirs who are chomping at the bit to receive their inheritances that you’re not allowed to give them their share, until you’ve settled with creditors, the IRS and others with a claim against the estate. You should also be sure that you understand the extent of the funds needed to pay what’s owed.
  5. Out-of-Pocket Expenses. An executor can receive a commission for handling his duties. The amount of the commission is typically determined by the size of the estate (e.g., a percentage of assets). However, with many cases, particularly smaller estates and among families, an executor may waive any commission. You should pay the expenses of the estate from an estate checking account and record all out-of-pocket expenses, because some of these expenses may be reimbursable by the estate.

Being an executor can be a challenge, but somebody must do it. If that person’s you, be sure to know what you’re getting into before you agree to act as an executor.

Reference: Investopedia (June 25, 2019) “5 Surprising Hazards of Being an Executor”