What Exactly Does an Executor Do?

What Exactly Does an Executor Do?

The executor is usually a spouse, close family member or trusted friend. If no such person is available, a qualified compensated person can be appointed under state law, according to a recent article from The Street entitled “Top Duties of an Estate Executor and How to Carry Them Out.”

The executor needs to be trustworthy and organized, since there are many details involved. Depending on the complexity and size of the estate, the executor’s duties could include additional tasks. However, the following are the five main categories:

  • Filing the will with the court
  • Gathering documents
  • Paying debts and taxes and collecting from any debtors
  • Closing out Social Security accounts, insurance policies and retirement accounts; and
  • Maintaining any real estate property, until it is sold or ownership is transferred to an heir.

Once the will is filed with the court and the will is deemed to be valid, the court will issue Letters Testamentary, and the executor will be empowered to go forward with their tasks as directed by the will.

Gathering documents.

The executor needs to gather documents, including:

  • Death certificates
  • Deeds and titles of ownership
  • Trust documents; and
  • Insurance policies.

Combine assets and close accounts.

The executor needs to contact the decedent’s banks, credit card companies, lenders, leasing companies and any accounts holding assets.

The executor also applies to the IRS for an estate tax ID number, also known as an EIN, and opens an estate bank account. This is where any assets are deposited, including proceeds from the sale of any assets.

The Social Security Administration needs to be notified of the death. Depending on the date of death, the last Social Security deposit may be recouped from the decedent’s bank account. If there is an eligible survivor, the executor may help the spouse or dependent apply for benefits.

Collect money owed and pay debts.

The executor may help beneficiaries file for life insurance proceeds.

The executor needs to examine and adjudicate any outstanding debts owed to the decedent and handle any creditor claims. The debts are not the financial responsibility of the executor and should be paid only from funds in the estate account.

With good planning, the executor can ensure an orderly and uncontested flow of assets from the deceased’s estate to heirs. This includes consultation with the testator while they are still living and can discuss their wishes and plan for a smooth transition. This is certainly not the most comfortable discussion. However, it can make the process easier for all concerned, if done with kindness and care in advance.

Reference: The Street (Dec. 5, 2022) “Top Duties of an Estate Executor and How to Carry Them Out”

Should I Keep Beneficiary Designations Up to Date?

Should I Keep Beneficiary Designations Up to Date?

If you don’t know who your beneficiaries are, then it’s time for a beneficiary designation check. Even if you think you remember, every now and then, they should be checked, according to an article “Are your beneficiary designations up to date?” from Community Voice.

Your choices may change with time. When did you open your very first IRA? Do you even remember when you purchased your life insurance policies? If it was back in the 1990s, chances are good the people in your life have changed, as well as your priorities.

When we filled out those forms on paper, back in the day, we were all confident they’d be the same forever, but time and life have a way of changing things. In five, ten or twenty years, big changes may have happened in your life. Your beneficiary designations and your estate plan need to reflect where you are now, not where you were then.

Smart people review these items every year. If you’re still working, your employer may have changed custodians for your retirement plan and your insurance policy. When a new custodian takes over, sometimes beneficiary designations can get lost in the change.

If you don’t have a beneficiary designation on these accounts, or any account where you have the option to name a beneficiary, you may have a bigger problem. The tax-focused part of your estate plan could be undone if you thought your 401(k) would go to your spouse but your spouse predeceased you.

If you don’t want your spouse to inherit your 401(k) or other retirement plan, your spouse will need to waive the inheritance in writing, if you want those assets to go to children or others. By law, spouses are protected when it comes to certain kinds of retirement accounts.

What most people don’t realize is that whatever choice you make on the beneficiary designation overrides anything in their wills. If you named someone to be your beneficiary, whether or not they are in your life, they will still receive the inheritance. Your family can try to fight it out in court, but they most likely will lose.

Another pitfall: naming the financial whiz in the family, then forgetting to review documents. Problems can arise if the whiz-kid moves far away or dies. If you make big changes to how you wish your estate to be distributed and neglect to tell the person named to carry out your updated wishes, they spend a lot of time trying to effectuate an out-of-date plan.

If you name your spouse as a beneficiary, the tax consequences are simpler. However, you still need an estate plan to plan for when the second spouse dies. In other words, you need an estate plan, including a will and trusts, and you also need to review it at least every three to five years.

Reference: Community Voice (September 30, 2022) “Are your beneficiary designations up to date?”

Can My Ex Get Some of My Estate?

Can My Ex Get Some of My Estate?

For many people, their will is their final communication to the world.

A will states how their property should be distributed upon their death. CNBC’s recent article entitled “Your ex-spouse could inherit your money. How to avoid this and other estate-planning mistakes” says that depending on how you plan, it may have a few some surprises for those who are close to you.

There are a couple of situations where you could inadvertently leave money to people you no longer intend as heirs, much to the surprise of other heirs.

An ex-spouse could get some of your money when you die, if you do not update your beneficiaries under a retirement plan.

Divorce does not automatically change a beneficiary designation, unless the divorce decree includes a stipulation to change it. IRAs are the same, so it is not uncommon for an IRA owner to die without having changed the beneficiary designation after a divorce. It’s usually just a simple oversight.

However, most state laws provide that once a married couple is divorced, ex-spouses lose all property rights.

However, pensions are governed by federal law, formally known as ERISA or the Employee Retirement Income Security Act of 1974. As a result, state rules do not apply.

Pensions are not the only accounts that people tend to forget to update. Bank account beneficiary designations are often hard to find, and circumstances may change from when you first set them up.

While it may be tempting to disinherit someone to whom you are no longer close, it can be a bad idea. That is because it can invite all kinds of issues, like a will challenge.

There is always the chance you may reconcile, even on your death bed, at which point it will be too late to update your will and estate plan. Therefore, leave something less to them and do not say anything bad.

To ensure your wishes are carried out the way you want, work with an experienced estate planning attorney.

Reference: CNBC (Jan. 9, 2022) “Your ex-spouse could inherit your money. How to avoid this and other estate-planning mistakes”

Is It Important for Physicians to Have an Estate Plan?

Is It Important for Physicians to Have an Estate Plan?

When the newly minted physician completes their residency and begins practicing, the last thing on their minds is getting their estate plan in order. Instead, they should make it a priority, according to a recent article titled “Physicians, get your estate in order or the court will do it instead” from Medical Economics. Physicians accumulate wealth to a greater degree and faster than most people. They are also in a profession with a higher likelihood of being sued than most. They need an estate plan.

Estate planning does more than distribute assets after death. It is also asset protection. An estate planning attorney helps physicians, dentists and other medical professionals protect their assets and their legacies.

Basic estate planning documents include a last will and testament, financial power of attorney and a medical power of attorney. However, the physician’s estate is complex and requires an attorney with experience in asset protection and business succession.

During the process of creating an estate plan, the physician will need to determine who they would want to serve as a guardian, if there are minor children and what they would want to occur if all of their beneficiaries were to predecease them. A list should be drafted with all assets, debts, including medical school loans, life insurance documents and retirement or pension accounts, including the names of beneficiaries.

The will is the center of the estate plan. It will require naming a person, typically a spouse, to be the executor: the person in charge of administering the estate. If the physician is not married, a trusted relative or friend can be named. There should also be a second person named, in case the first is unable to serve.

If the physician owns their practice, the estate plan should be augmented with a business succession plan. The will’s executor may need to oversee decisions regarding the sale of the practice. A trusted friend with no business acumen or knowledge of how a medical practice works may not be the best executor. These are all important considerations. Special considerations apply when the “business” is a professional practice, so do not make any moves without expert estate planning assistance.

The will only controls assets in the individual’s name. Assets owned jointly, or those with a beneficiary designation, are not governed by the will.

Without a will, the entire estate may need to go through probate, which is a lengthy and expensive process. For one family, their father’s lack of a will and secrecy took 18 months and cost $30,000 in legal fees for the estate to be settled.

Trusts are an option for protecting assets. By placing assets in trust, they are protected from creditors and provide control in complex family situations. The goal is to create a trust and fund it before any legal actions occur. Transferring assets after a lawsuit has begun or after a creditor has attached an asset could lead to a physician being charged with fraudulent conveyance—where assets are transferred for the sole purpose of avoiding paying creditors.

Estate planning is never a one-and-done event. If a doctor starts a family limited partnership to transfer wealth to the next generation but neglects to properly maintain the partnership, some or all of the funds may be vulnerable.

An estate plan needs to be reviewed every few years and certainly every time a major life event occurs, including marriage, divorce, birth, death, relocation, or a significant change in wealth.

When consulting with an experienced estate planning attorney, a doctor should ask about the potential benefits of revocable living trust planning to avoid probate, maintain privacy and streamline the administration of the estate upon incapacity or at death.

Reference: Medical Economics (Feb. 22, 2022) “Physicians, get your estate in order or the court will do it instead”

Can You Keep Your Children from Inheriting Your Money?

Can You Keep Your Children from Inheriting Your Money?

What if you want to exclude your children and give your assets to a charity or a college after you pass away? You also don’t want your children to be able to contest your will.

Nj.com’s article entitled “My kids are brats. I don’t want them to inherit. What’s next?” explains that a person with this intention has a number of options for their estate.

First, you should understand that, unless there is a pre-existing contractual agreement or other obligation to do so, a person typically isn’t required to leave anyone other than their spouse anything in their estate.

A properly drafted will by an experienced estate planning attorney allows a person to name the beneficiaries of their estate. This can include charities. It also includes the amount or specific items and in what way each beneficiary will inherit.

You really can’t do much to prevent a child from challenging a will. However, your estate planning attorney can take steps to mitigate the risk that a challenge may be successful. This can include ensuring the testator — the person who establishes a will — has the requisite capacity to sign a will (“being of sound mind”) and that they’re signing it free of any undue influence or duress.

An experienced estate planning attorney will usually meet with a client several times to discuss the client’s assets and intention of disinheriting a child. The attorney will take notes that may be offered as evidence in the event of a will contest and even conduct the meeting in the presence of another attorney or staff member of the firm who could act as another witness.

A will should include specific language that it is the testator’s intent to disinherit a person, and that this individual should be treated as predeceasing the testator for purposes of the will. This helps ensure that the disinherited individual doesn’t somehow benefit.

Note that not all assets pass through the estate and pursuant to the terms of a will. Assets like retirement accounts, life insurance, annuities, and other financial accounts pass by beneficiary designation.

Real estate usually passes by operation of law, such by joint tenancy with right of survivorship.

Reference: nj.com (Dec. 22, 2021) “My kids are brats. I don’t want them to inherit. What’s next?”

Will Moving to a New State Impact My Estate Planning?

Will Moving to a New State Impact My Estate Planning?

Since the coronavirus pandemic hit the U.S., baby boomers have been speeding up their retirement plans. Many Americans have also been moving to new states. For retirees, the non-financial considerations often revolve around weather, proximity to grandchildren and access to quality healthcare and other services.

Forbes’ recent article entitled “Thinking of Retiring and Moving? Consider the Financial Implications First” provides some considerations for retirees who may set off on a move.

  1. Income tax rates. Before moving to a new state, you should know how much income you’re likely to be generating in retirement. It’s equally essential to understand what type of income you’re going to generate. Your income as well as the type of income you receive could significantly influence your economic health as a retiree, after you make your move. Before moving to a new state, look into the tax code of your prospective new state. Many states have flat income tax rates, such as Massachusetts at 5%. The states that have no income tax include Alaska, Florida, Nevada, Texas, Washington, South Dakota and Wyoming. Other states that don’t have flat income tax rates may be attractive or unattractive, based on your level of income. Another important consideration is the tax treatment of Social Security income, pension income and retirement plan income. Some states treat this income just like any other source of income, while others offer preferential treatment to the income that retirees typically enjoy.
  2. Housing costs. The cost of housing varies dramatically from state to state and from city to city, so understand how your housing costs are likely to change. You should also consider the cost of buying a home, maintenance costs, insurance and property taxes. Property taxes may vary by state and also by county. Insurance costs can also vary.
  3. Sales taxes. Some states (New Hampshire, Oregon, Montana, Delaware and Alaska) have no sales taxes. However, most states have a sales tax of some kind, which generally adds to the cost of living. California has the highest sales tax, currently at 7.5%, then comes Tennessee, Rhode Island, New Jersey, Mississippi and Indiana, each with a sales tax of 7%. Many other places also have a county sales tax and a city sales tax. You should also research those taxes.
  4. The state’s financial health. Examine the health of the state pension systems where you are thinking about moving. The states with the highest level of unfunded pension debts include Connecticut, Illinois, Alaska, New Jersey and Hawaii. They each have unfunded state pensions at a level of more than 20% of their state GDP. If you’re thinking about moving to one of those states, you’re more apt to see tax increases in the future because of the huge financial obligations of these states.
  5. The overall cost of living. Examine your budget to see the extent to which your annual living expenses might increase or decrease in your new location because food, healthcare and transportation costs can vary by location. If your costs are going to go up, that should be all right, provided you have the financial resources to fund a larger expense budget. Be sure that you’ve accounted for the differences before you move.
  6. Estate planning considerations. If this is going to be your last move, it’s likely that the laws of your new state will apply to your estate after you die. Many states don’t have an estate or gift tax, which means your estate and gifts will only be subject to federal tax laws. However, a number of states, such as Maryland and Iowa, have a state estate tax.

You should talk to an experienced estate planning attorney about the estate and gift tax implications of your move.

Reference: Forbes (Nov. 30, 2021) “Thinking of Retiring and Moving? Consider the Financial Implications First”

What’s the First Step in Estate Planning?

What’s the First Step in Estate Planning?

 

Forbes’ recent article entitled “A Love Letter to Your Heirs” explains that not having an estate plan is risky, almost like riding in a speeding car on the freeway without wearing a seatbelt. However, it’s never too late — or too early — to put one together.

The first step is to create a vision of your future. Consider the most important people in your life or your charitable goals. This should help with the distribution of your assets. Then, plan who gets what, both when and how.

Remember that you can modify your estate plan over time. You should also develop and implement a financial plan to provide ongoing guidance for your long-term wealth accumulation goals. This means reviewing your will regularly, especially if your investment portfolio becomes more complex and when your family situation changes, such as the birth of a child or even a divorce.

Work with an experienced estate planning attorney to implement tax mitigation strategies to reduce or eliminate taxes. Keep in mind that different types of assets can and should get different treatment. For instance, you should handle assets you own outright with care. Consider assigning ownership for each treasured heirloom, even as that can seem tedious. Another option is to allow heirs to place bids on items, using money allocated to them from the estate.

Based on the asset and how liquid it is, the executor could either sell it to raise cash or retain it and then distribute it to heirs under the terms of the will. Other assets, such as those held jointly, will go directly to the surviving joint tenant, while qualified retirement plan assets — like IRAs, 401(k)s, 403(b)s, profit-sharing plans, and pension plans will go directly to a named beneficiary. Similarly, life insurance proceeds pass directly to a named beneficiary.

In addition any assets subject to a lien can be sold to pay off outstanding debt, or your executor can use cash from the estate to pay off the debt and retain the asset.

Bequeathing your estate to your chosen beneficiary or contingent beneficiary can be one of the most important life decisions you can make for their future.

Even singles without children should have a will, so that you can pass your wealth to a relative or someone else about whom you care deeply.

Reference: Forbes (Jan. 10, 2022) “A Love Letter to Your Heirs”

What Power Does an Executor Have?

What Power Does an Executor Have?

Being asked to serve as an executor is a big compliment with potential pitfalls, advises the recent article “How to Prepare to Be an Executor of an Estate” from U.S. News & World Report. You are being asked because you are considered trustworthy and able to handle complex tasks. That’s flattering, of course, but there’s a lot to know before making a final decision about taking on the job.

An executor of an estate helps file paperwork, close accounts, distribute assets of the deceased, deal with probate and any court filings and navigate family dynamics. Some of the tasks include:

  • Locating critical documents, like the will, any trusts, deeds, vehicle titles, etc.
  • Obtaining death certificates.
  • Overseeing funeral arrangements and memorial services, if any.
  • Filing the will in probate court.
  • Creating an estate bank account, after obtaining an estate tax number (EIN).
  • Notifying organizations, including Social Security, pension accounts, etc.
  • Paying creditors.
  • Distributing assets.
  • Overseeing the sale or transfer of real estate
  • Filing estate tax returns and final tax returns.

If you are asked to become the executor of an estate for a loved one, it’s a good idea to gather as much information as possible while the person is still living. It will be far easier to tackle the tasks, if you have been set up to succeed. Find out where their estate planning documents are and read the documents to make sure you understand them. If you don’t understand, ask, and keep asking until you do. Similarly, obtain information about all assets, including joint assets. Find out if there are any family members who may pose a challenge to the estate.

Today’s assets include digital assets. Ask for a complete list of the person’s online accounts, usernames and passwords. You will also need access to their devices: desktop computer, laptop, tablet, phone and smart watch. Discuss what they want to happen to each account and see if there is an option for you to become a co-owner of the account or a legacy contact.

Many opt to have an estate planning attorney manage some or all of these tasks, as they can be very overwhelming. Frankly, it’s hard to administer an estate at the same time you’re grieving the loss of a loved one.

As executor, you are a fiduciary, meaning you’re legally required to put the deceased’s interests above your own. This includes managing the estate’s assets. If the person owned a home, you would need to secure the property, pay the mortgage and/or property taxes and maintain the property until it is sold or transferred to an heir. Financial accounts need to be managed, including investment accounts.

The amount of time this process will take, depends on the complexity and size of the estate. Most estates take at least twelve months to complete all of the administrative work. It is a big commitment and can feel like a second job.

A few things vary by state. Convicted felons are never permitted to serve as executors, regardless of what the will says. A sole executor must be a U.S. citizen, although a non-citizen can be a co-executor, if the other co-executor is a citizen. Rules also vary from state to state regarding being paid for your time. Most states permit a percentage of the size of the estate, which must be considered earned income and reported on tax returns.

Be very thorough and careful in documenting every decision made as the executor to protect yourself from any future challenges. This is one job where trying to do it on your own could have long-term effects on your relationship with the family and financial liability, so take it seriously. If it’s too much, an estate planning attorney can help.

Reference: U.S. News & World Report (Dec. 22, 2021) “How to Prepare to Be an Executor of an Estate” 

Should I Start Estate Planning Now?

Should I Start Estate Planning Now?

The coronavirus has taken a toll on our finances, as well as our physical and mental health. As a result, it’s important to plan appropriately for your health care and financial needs in an estate plan to provide much-needed peace of mind, say Yahoo Finance’s recent article entitled “Estate Planning During a Pandemic – Quit Stalling.” The article lists the important components of a comprehensive estate plan:

Advance Health Care Directive. This is a written plan that states your wishes, in the event you can’t speak for yourself. Your wishes need to be in writing, and the document should be updated as your health changes. Review your advance health care directive with your doctor and the person you select as your health care proxy to be certain it’s completed correctly.

Health Care Power of Attorney. This legal document lets you name someone who can review your medical records and make decisions, such as how and where you should be treated. This would be applicable, if you were incapacitated and unable to make medical decisions for yourself.

Living Will. A living will is a type of advance health care directive that specifically states your end-of-life decisions in the event you are terminally ill or permanently unconscious. This covers specific medical treatments, like CPR, ventilation, pain management, tube feeding and organ and tissue donation.

Financial Power of Attorney. This document lets you name someone to help with your finances, if you become incapacitated and unable to do so. You can state how much control your power of attorney will have, like accessing accounts, selling stock and managing real estate.

Trusts. Ask an experienced estate planning attorney about creating a trust to protect your assets as you pass them down to your heirs. If your children or grandchildren aren’t old enough or mature enough to handle their inheritance, you can set up a trust that provides them with a small amount of money each year, increasing that amount as they get older. You can also direct that the money be specifically used for an adult child’s mortgage or student loans.

Beneficiaries. Many people forget to update their life insurance policies, bank, brokerage accounts and retirement plans. These all have beneficiary forms, which supersede a will. These should be updated, along with your estate plan, every few years and after every major life change. That’s something like a marriage, divorce, death, adoption, or birth.

Make certain that you are reviewing and updating your estate plan when you review your retirement plan each year or so.

Reference: Yahoo Finance (Oct. 31, 2021) “Estate Planning During a Pandemic – Quit Stalling”

Do I Have to Give My Husband’s Children from First Marriage Anything When He Dies?”

Do I Have to Give My Husband’s Children from First Marriage Anything When He Dies?”

This is a common question with second (or third marriages) and blended families. Questions frequently arise about Social Security, investments and savings, when the husband is divorced from the children’s mother and is paying child support until each child turns 18.

Nj.com’s recent article entitled “Are my husband’s kids from another marriage due assets when he dies?” says that these questions demonstrate why estate planning is critical to revisit after a divorce. You can take action to make certain that you’re taken care of, but if you don’t do this at the time of the divorce, it could be too late.

Let’s look at what you should know about beneficiaries and wills. First, beneficiary designations supersede a will. Make sure that all beneficiaries and contingent beneficiaries are consistent with your wishes. There are beneficiary designations on retirement accounts, pensions, life insurance policies, annuities and other accounts that take precedence over what may be stated in a will.

While New Jersey does not provide for beneficiary designations on certain assets like a house, vehicles, and real estate, many other states do. For assets without a beneficiary, it’s important to determine the way in which they’re titled.

The titling of assets has an effect on how the assets will be distributed after death. Thus, when married again, spouses should review and update their wills to have an idea of how a spouse’s estate would be disbursed at his or her death.

If a husband is paying child support, divorce decrees will often dictate that he purchase life insurance to cover that obligation upon his death. Therefore, there may be a life insurance policy for the children from a first marriage.

With Social Security, if a spouse remains unmarried after the spouse’s death, he or she can claim a survivor spousal benefit as early as age 60, and if he or she is caring for the spouse’s children from the first marriage who are under 16 years of age, he or she may be entitled to receive a payment earlier. The deceased spouse’s unmarried children can also claim a survivor benefit until age 18, or longer if in high school or disabled.

Reference: nj.com (Aug. 4, 2021) “Are my husband’s kids from another marriage due assets when he dies?”