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”

How Do I Calculate My Executor’s Fee?

An executor’s fee is the amount of money that’s charged by the individual who’s been named or appointed as the executor of the probate estate for handling all of the necessary tasks in the probate administration.

If you’ve been appointed an executor of someone’s estate, you may be entitled to a fee for your services.

The executor or personal representative fee could be based upon a variety of factors. Some of these factors may be dependent upon the law in your state, says nj.com’s recent article, “Both of my parents died. How do I calculate the executor fee?”

In most states, the executor fee is set by statute. For example, in New Jersey, it is 5% of the first $200,000 of assets taken in by the executor, 3.5% of the next $800,000 of assets, and 2% on anything in excess of $1 million. Likewise, California has a sliding scale based on the amount of the estate.

However, in Minnesota and Nebraska, the law states that the fee should be “reasonable.”

The amount of work involved is determined by the specific estate. The executor is generally responsible for collecting the estate assets, paying the debts and taxes (if any) and then giving what’s remaining to the heirs.

If you elect to take the commission, it’s taxable income which must be shown on your personal income tax return.

In New Jersey, if there are co-executors, the statute says that an additional 1% can be included to the commission. However, any one executor cannot receive more than the amount to which a sole executor is entitled.

Note that the executor only receives a commission on what he or she takes control of as executor.

This means that the executor doesn’t get a commission on assets that have beneficiary designations on death or that are jointly owned with right of survivorship. These assets pass outside of the will and the executor doesn’t take possession of these assets.

In many instances, the probate estate of the first spouse to die is less than the second. That’s because many of the assets were held jointly with right of survivorship. As a result, they aren’t probate assets and are not subject to the commission.

If that’s the case, the commission on the first spouse’s estate would be much less than the commission on the second estate.

Reference: nj.com (October 10, 2019) “Both of my parents died. How do I calculate the executor fee?”

Can a Trust Be Amended?

A son has contacted an elder law estate planning attorney now that mom is in a nursing home and he’s unsure about many of the planning issues, as reported by the Daily Republic. The article, “Amending trust easier if parents can make informed decision,” describes the family’s situation.

There is one point to consider from the start. If the son been involved in the planning from the start, in a family meeting with the attorney and discussions with his parents, he might have less uncertainty about the plan and the details.

As for the details: the parents are in their 90s, with some savings, a few annuities, a CD and a checking account. They also have five acres of land, which has their home and a duplex on it and 12 additional acres, with a rental property on it. Everything they own has been placed in a family trust. The son wants to be able to pay her bills and was told that he needs to have a power of attorney and to be named trustee to their trust.

He reports that his parents are good with this idea, but he has a number of concerns. If they are sued, will he be personally liable? Would the power of attorney give him the ability to handle their finances and the real estate in the trust?

If his parents have a revocable or living trust, there are provisions that allow one or more persons to become the successor trustees, in the event that the parent becomes incapacitated or dies.

What happens when they die, as they each leave each other their share of the assets? The son would become the trustee, when the last parent passes.

Usually the power of attorney is created when the trust is created, so that someone has the ability to take control of finances for the person. See if the trust has any of these provisions—the son may already be legally positioned to act on his parents’ behalf. The trust should also show whether the successor trustee would be empowered to sell the real estate.

Trusts can be drafted in any way the client wants it written, and the successor trustee receives only the powers that are given in the document.

As for the liability, the trustee is not liable to a buyer during the sale of a property. There are exceptions, so he would need to speak with an estate planning attorney to help with the sale.

More specifically, assuming the trust does not name the son as a successor trustee and also does not give the son power of attorney, the bigger question is are the parents mentally competent to make important decisions about these documents?

Given the age of these parents, an attorney will be concerned, rightfully so, about their competency and if they can freely make an informed decision, or if the son might be exercising improper influence on them to turn over their assets to him.

There are a few different steps that can be taken. One is for the son, if he believes that his parents are mentally competent, to make an appointment for them with an estate planning attorney, without the son being present in the meeting, in order to determine their capacity and wishes. If the attorney is not sure about the influence of the son, he or she may want to refer the parents for a second opinion with another attorney.

If the parents are found not competent, then the son may need to become their conservator, which requires a court proceeding.

Planning in advance and discussing these issues are best done with an experienced estate planning attorney, long before the issues become more complicated and expensive to deal with.

Reference: Daily Republic (Aug. 10, 2019) “Amending trust easier if parents can make informed decision”

What Do I Need to Know Before Becoming an Estate Executor?

An executor steps in for the person who wrote the will and makes sure that all the final arrangements are carried out. When you agree to be named the executor or personal representative of an estate, it’s a big decision. It is far more significant than most people realize. There are many responsibilities to think about, before agreeing to take on the role. Investopedia’s recent article, “5 Things to Consider Before Becoming an Estate Executor” lists five things to consider before saying yes.

Last Will

  1. Complexity of the Estate. Typically, the larger the estate—which can be in terms of property, possessions, assets or the number of beneficiaries—the harder and more time consuming it will be. The best way to see how difficult the job will be, is to request to see a copy of the current will. If there are obvious red flags, like unequal distributions to children or trusts or annuities, it may be best to say no.
  2. Time Commitment. This job takes time and energy, and requires a lot of attention to detail. Truth be told, almost all has to do with the details. Before you agree to execute a will, you should be sure that you have the time to do the job. It’s also important to review your decision to serve as an executor every time your situation changes, like when you get married, have children or change locations. It’s not unusual for a testator to change executors throughout a lifetime.
  3. Immediate Responsibilities. You may agree to be an executor, thinking that it’ll be years before you have to do any work. However, that’s not always the case. You should be sure the testator is keeping a list of assets and debts and knows where the original will, and the asset list are being held and how to access them. You should also have a list of the contact info for attorneys or agents named by the testator. You can also discuss the testator’s wishes for a funeral or memorial service, including instructions for burial or cremation.
  4. Duties After the Testator Dies. This is when the executor must make funeral arrangements, locate the will, initiate probate, manage assets, pay all debts, submit tax returns and more. This can be a snap, if you’re organized and detail oriented.
  5. How You’ll Be Paid. Each state has laws on how an executor is paid. An executor is also entitled to be compensated for expenses incurred, as they carry out their responsibilities. Executors can also refuse compensation, which is common if you’re doing this for a member of your family.

It’s an honor to be asked to be an executor. It means the testator trusts you to carry out their final wishes and to see to their legacy. However, be sure that you’re up to the task.

Reference: Investopedia (June 25, 2019) “5 Things to Consider Before Becoming an Estate Executor”