King & Wood, P.A.

Just What Does an Executor Do?

“In addition to deciding who gets what when you die, you have key roles to fill that deserve thoughtful deliberation as part of the estate-planning process, experts say.”

Spending the least amount of time possible contemplating your death is what most people try to do. However, one part of the estate planning process needs time and reflection: deciding who should serve in important roles, including executor. Whatever the size of your estate, the people you name have jobs that will impact your life and your family’s future, says a recent article “How to get it right when naming an executor and filling other key roles in your estate plan” from CNBC. A quick decision now might have a bad outcome later.

First, let’s look at the executor. They are responsible for everything from filing your last will with the court to paying off debts, closing accounts and making sure that assets in your probate estate are distributed according to the directions in your last will. They need to be trustworthy, organized and able to manage financial decisions. They also need to be available to handle your estate, in addition to their other responsibilities.

Note that some of your assets, including retirement tax deferred accounts, life insurance proceeds and any other assets with a named beneficiary, will pass outside of your probate estate. These assets need to be identified and the custodian needs to be notified so the heir can receive the asset.

Settling an estate takes an average of 16 months, with smaller estates being settled more quickly. Larger estates, worth more than $5 million and up, can take as long as four years to settle.

Some people prefer to name co-executors as a means of spreading out the responsibilities. That ix fine, unless the two people have a history of not getting along, as is the case with many siblings. Sharing the duties sounds like a good idea, but it can lead to delays if the two don’t agree or can’t coordinate their estate tasks. Many estate planning attorneys recommend naming one person as the executor and a second as the contingency executor, in case the first cannot serve or decides he or she does not want to take on the responsibilities. The same applies to any trustees, if your estate plan includes a trust.

Make sure the people you are considering as executor, contingent executor, trustee or success or trustee are willing to take on these roles. If there is no one in your life who can take on these tasks, an option is to name an estate planning attorney, accountant, or trust company.

Another important role in your estate plan is the Power of Attorney. You’ll want one for financial decisions and another for healthcare decisions. They can be the same person or different people. Understand that the financial Power of Attorney will have complete control over your assets, including accounts, real estate, and personal property, if you are too incapacitated to make decisions or to communicate your wishes.

The healthcare Power of Attorney will be making medical decisions on your behalf. You will want to name a person you trust to carry out your wishes—even if they are not the same ones they would want, or if your family opposes your wishes. It’s not an easy task, so be sure to create a Living Will to express your wishes, if you are placed on life support or suffer from a terminal condition. This will help your healthcare Power of Attorney follow your wishes.

Finally, revisit your estate plan every three to five years. Life changes, laws change and your estate plan should continue to reflect your wishes. The lives of the people in key roles change, so the same person who was ready to serve as your executor today may not be five years from now. Confirm their willingness to serve every time you review your last will, just to be sure.

Reference: CNBC (March 5, 2021) “How to get it right when naming an executor and filling other key roles in your estate plan”

What are the Stages of Probate?

“Although most assets in your estate may pass through the probate process, other assets may not. It often depends on the type of asset or how an asset is titled.”

Probate is a court-supervised process occurring after your death. It takes place in the state where you were a resident at the time of your death and addresses your estate—all of your financial assets, real estate, personal belongings, debts and unpaid taxes. If you have an estate plan, your last will names an executor, the person who takes charge of your estate and settles your affairs, explains the article “Understanding Probate” from Pike County Courier. How exactly does the probate process work?

If your estate is subject to probate, your estate planning attorney files an application for the probate of your last will with the local court. The application, known as a petition, is brought to the probate court, along with the last will. That is also usually when the petitioner files an application for the appointment of the executor of your estate.

First, the court must rule on the validity of the last will. Does it meet all of the state’s requirements? Was it witnessed properly? If the last will meets the state’s requirements, then the court deems it valid and addresses the application for the executor. That person must also meet the legal requirements of your state. If the court agrees that the person is fit to serve, it approves the application.

The executor plays a very important role in settling your estate. The executor is usually a spouse or a close family member. However, there are situations when naming an attorney or a bank is a better option. The person needs to be completely trustworthy. Your fiduciary will have a legal responsibility to be honest, impartial and put your estate’s well-being above the fiduciary’s own. If they do not have a good grasp of financial matters, the fiduciary must have the common sense to ask for expert help when needed.

Here are some of the tasks the fiduciary must address:

• Finding and gathering assets and liabilities
• Inventorying and appraising assets
• Filing the estate tax return and your last tax return
• Paying debts, managing creditors and paying taxes
• Distributing assets
• Providing a detailed report of the estate settlement to the court and any other parties

What is the probate court’s role in this part of the process? It depends upon the state. The probate court is more involved in some states than in others. If the state allows for a less formal process, it’s simpler and faster. If the estate is complicated with multiple properties, significant assets and multiple heirs, probate can take years.

If there is no executor named in your last will, the court will appoint an administrator. If you do not have a last will, the court will also appoint an administrator to settle your estate following the laws of the state. This is the worst possible scenario, since your assets may be distributed in ways you never wished.

Does all of your estate go through the probate process? With proper estate planning, many assets can be taken out of your probate estate, allowing them to be distributed faster and easier. How assets are titled determines whether they go through probate. Any assets with named beneficiaries pass directly to those beneficiaries and are outside of the estate. That includes life insurance policies and retirement plans with named beneficiaries. It also includes assets titled “jointly with rights of survivorship,” which is how most people own their homes.

Your estate planning attorney will discuss how the probate process works in your state and how to prepare a last will and any needed trusts to distribute your assets as efficiently as possible.

Reference: Pike County Courier (March 4, 2021) “Understanding Probate”

How Do You Handle Probate?

“Although there is considerable legal information and misinformation, it is generally understood that a last will and testament is the device used to distribute property after death. However, the why, how and when are less familiar.”

While you are living, you have the right to give anyone any property of your choosing. If you give your power to gift your property to another person, typically through a Power of Attorney, then that person is your agent and may give away your property, according to an article “Explaining the basic aspects probate” from The News-Enterprise. When you die, the Power of Attorney you gave to an agent ends, and they are no longer in control of your estate. Your “estate” is not a big fancy house, but a legal term used to define the total of everything you own.

Property that you owned while living, unless it was owned jointly with another person, or had a beneficiary designation giving the property to another person upon your death, is distributed through a court order. However, the court order requires a series of steps.

First, you need to have had created a will while you were living. Unlike most legal documents (including the Power of Attorney mentioned above), a will is valid when it is properly signed. However, it can’t be used until a probate case is opened at the local District Court. If the Court deems the will to be valid, the probate proceeding is called “testate” and the executor named in the will may go forward with settling the estate (paying legitimate debts, taxes and expenses), before distributing assets upon court permission.

If you did not have a will, or if the will was not prepared correctly and is deemed invalid by the court, the probate is called “intestate” and the court appoints an administrator to follow the state’s laws concerning how property is to be distributed. You may not agree with how the state law directs property distribution. Your spouse or your family may not like it either, but the law itself decides who gets what.

After opening a probate case, the court will appoint a fiduciary (executor or administrator) and may have a legal notice published in the local newspaper, so any creditors can file a claim against the estate.

The executor or administrator will create a list of all of the property and the claims submitted by any creditors. It is their job to ensure that claims are valid and have been submitted within the correct timeframe. They will also be in charge of cleaning out your home, securing your home and other possessions, then selling the house and distributing your personal furnishings.

Depending on the size of the estate, the executor or administrator’s job may be time consuming and complex. If you left good documentation and lists of assets, a clean file system or, best of all, an estate binder with all your documents and information in one place, it can alleviate a lot of stress for your executor. Estate fiduciaries who are left with little information or a disorganized mess must undertake an expensive and burdensome scavenger hunt.

The executor or administrator is entitled to a fiduciary fee for their work, which is usually a percentage of the estate.

Probate ends when all of the property has been gathered, creditors have been paid and beneficiaries have received their distributions.

With a properly prepared estate plan, your property will be distributed according to your wishes, versus hoping the state’s laws will serve your family. You can also use the estate planning process to create the necessary documents to protect you during life, including a Power of Attorney, Advance Medical Directive and Healthcare proxy.

Reference: The News-Enterprise (Feb. 2, 2021) “Explaining the basic aspects probate”

How Does a Trust Work for a Farm Family?

“The trust is a very useful and flexible tool for estate planning, yet it is probably the most underused estate management technique. A trust is an artificial entity, something like a corporation, created by a document or instrument.”

There are four elements to a trust, as described in this recent article “Trust as an Estate Planning Tool,” from Ag Decision Maker: trustee, trust property, trust document and beneficiaries. The trust is created by the trust document, also known as a trust agreement. The person who creates the trust is called the trustmaker, grantor, settlor, or trustor. The document contains instructions for management of the trust assets, including distribution of assets and what should happen to the trust, if the trustmaker dies or becomes incapacitated.

Beneficiaries of the trust are also named in the trust document, and may include the trustmaker, spouse, relatives, friends and charitable organizations.

The individual who creates the trust is responsible for funding the trust. This is done by changing the title of ownership for each asset that is placed in the trust from an individual’s name to that of the trust. Failing to fund the trust is an all too frequent mistake made by trustmakers.

The assets of the trust are managed by the trustee, named in the trust document. The trustee is a fiduciary, meaning they must place the interest of the trust above their own personal interest. Any management of trust assets, including collecting income, conducting accounting or tax reporting, investments, etc., must be done in accordance with the instructions in the trust.

The process of estate planning includes an evaluation of whether a trust is useful, given each family’s unique circumstances. For farm families, gifting an asset like farmland while retaining lifetime use can be done through a retained life estate, but a trust can be used as well. If the family is planning for future generations, wishing to transfer farm income to children and the farmland to grandchildren, for example, a granted life estate or a trust document will work.

Other situations where a trust is needed include families where there is a spendthrift heir, concerns about litigious in-laws or a second marriage with children from prior marriages.

Two main types of trust are living or inter-vivos trusts and testamentary trusts. The living trust is established and funded by a living person, while the testamentary trust is created in a will and is funded upon the death of the willmaker.

There are two main types of living trusts: revocable and irrevocable. The revocable trust transfers assets into a trust, but the grantor maintains control over the assets. Keeping control means giving up any tax benefits, as the assets are included as part of the estate at the time of death. When the trust is irrevocable, it cannot be altered, amended, or terminated by the trustmaker. The assets are not counted for estate tax purposes in most cases.

When farm families include multiple generations and significant assets, it’s important to work with an experienced estate planning attorney to ensure that the farm’s property and assets are protected and successfully passed from generation to generation.

Reference: Ag Decision Maker (Dec. 2020) “Trust as an Estate Planning Tool”

 

Make Sure Your Estate Plan Protects Digital Assets

 

 

 

 

“Do you have accounts, records or information that are accessed using your mobile phone, through an internet connection, or by using a keyboard or through a touch-screen or tablet?”

 

Today’s estate plan needs to expressly declare an “agent” or a “fiduciary” to gain access and control of “digital assets” in case of incapacity or death. If your estate plan has not been updated in the last four or five years, it’s likely that your digital assets are unprotected, advises the article “Properly addressing digital assets on your estate plan” from Southern Nevada Business Weekly.
Digital assets have value not only to owners, but to family members, beneficiaries and heirs. Some assets have sentimental value, like videos and photos, while others, like business records, URLs and gaming accounts, have financial value. Failing to address these issues in an estate plan could result in your executor and heirs being denied access and control of digital assets during incapacity or death.
Here are some examples of digital assets:
· Email accounts–contain communications and history, including information about other digital assets.
· Social media accounts/apps: Facebook, Twitter, Pinterest, YouTube, TikTok, etc.
· Photo Sharing Accounts: Instagram, Shutterfly, Snapfish, Flickr, etc.
· Gaming and Gambling Accounts/Apps: DraftKings, Esports Entertainment
· E-Commerce Accounts/Apps: Amazon, PayPal, Etsy, PayPal, Venmo, etc.
· Financial Accounts/Apps: Banks, Scottrade, E*Trade
· Retail Accounts: Any store, online shopping that has a username and a password
· Security Information: Two factor authentication, mobile phone PIN/PW, facial recognition, etc.
Here’s a little-known fact: without the proper legal authority to access these assets, the “agent” or “fiduciary” could be committing a crime. The Consumer Fraud and Abuse Act provides that it is a federal crime to access a computer and obtain information without authorization or when exceeding authorized access.
Most states have adopted the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA 2017). The Act contains specific language to be used in wills, trusts or power of attorney to name a “designated recipient” or “fiduciary” to access, control, transfer, or close digital assets upon incapacity or after death. RUFADDA also provides specific procedures for companies to disclose digital assets to a designated recipient or fiduciary.
If your estate planning assets do not address the issue of digital assets or do not use the specific language of RUFADDA, or generally if your estate planning documents were created before 2017, it’s time for a review that includes digital assets.
Even if all you have is a personal email account, you have digital assets to protect. It’s not a big problem to address them in your estate plan but can become a bigger program if they are neglected.
Reference: Southern Nevada Business Weekly (Sep. 17, 2020)“Properly addressing digital assets on your estate plan”

Does Your Estate Plan Include Digital Property Protection?

“It’s difficult to go a few hours without interacting with a digital account. Whether that is email, online banking, or social media, many daily tasks involve  digital informational storage.”

One of the challenges facing estate plans today is a new class of assets, known as digital property or digital assets. When a person dies, what happens to their digital lives? According to the article “Digital assets important part of modern estate planning” from the Cleveland Jewish News, digital assets need to be included in an estate plan, just like any other property.
What is a digital asset? There are many, but the basics include things like social media—Facebook, Instagram, Snapchat—as well as financial accounts, bank and investment accounts, blogs, photo sharing accounts, cloud storage, text messages, emails, and more. If it has a username and a password and you access it on a digital device, consider it a digital asset.
Business and household files stored on a local computer or in the cloud should also be considered as digital assets. The same goes for any cryptocurrency; Bitcoin is the most well-known type, and there are many others.

The Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA) has been adopted by almost all states to provide legal guidance on rights to access digital assets for four (4) different types of fiduciaries: executors, trustees, agents under a financial power of attorney and guardians. The law allows people the right to grant not only their digital assets but the contents of their communications. It establishes a three-tier system for the user, the most important part being if the person expresses permission in an online platform for a specific asset, directly with the custodian of a digital platform, that is the controlling law. If they have not done so, they can provide for permission to be granted in their estate planning documents. They can also allow or forbid people to gain access to their digital assets.

If a person does not take either of these steps, the terms of service they agreed to with the platform custodian governs the rights to access or deny access to their digital assets.
It’s important to discuss this new asset class with your estate planning attorney to ensure that your estate plan addresses your digital assets. Having a list of digital assets is the first step, but it’s just the start. Leaving the family to fight with a tech giant to gain access to digital accounts is a stressful legacy to leave behind.
Reference: Cleveland Jewish News (Sep. 24, 2020) “Digital assets important part of modern estate planning”

How to Choose a Trustee

“Only you know the strengths and weaknesses of your family members, putting you in the best position to decide if your spouse or your child can appreciate a trustee’s responsibilities.”

To protect all that you have worked for and take care of the most important people in your life, you may have been advised to place some or perhaps all of your assets into a trust. Once you and your estate planning attorney have made that decision, you’ll need to decide who to name as your trustee or trustees. Doing so is not always an easy process, explains Kiplinger in the article “Guidance on Choosing the Right Trustee (or Trustees) for Your Estate.”

Serving as a trustee creates many duties under state law, including acting as a fiduciary to the trust. That means the trustee must be impartial about their own interests, put the beneficiary’s interests and well-being first and be prudent with how they invest funds. Law prohibits a trustee from self-dealing.

Here are a series of questions that will help to assess a person’s ability to serve as a trustee:

• Will the person be able to separate their personal feelings and interests from those of the beneficiaries?
• Will all parties be treated fairly, especially if your children are not also your spouse’s children?
• Can your trustee manage complex finances and investments?
• Is there any risk that your trustee will be tempted to take a risk to obtain money at the expense of beneficiaries?
• What happens if your spouse remarries?
• Will a child who is a trustee be fair to the other siblings, even if they are step siblings?
• Will a child who is managing work and family have the time to take on the responsibilities of the trustee?

Some people decide that no family member is the right fit for the trustee role, and opt instead for their estate planning attorney, accountant or financial advisor to serve as a trustee. There are some questions to ask:

• Does the person understand the family dynamics?
• Has the person served as a trustee before?
• Can they separate their personal financial interest from their clients?
• If there is a breach of duties, will their professional malpractice coverage be enough to make the trust whole?

Some families prefer to use a bank or trust company to provide fiduciary services and act independently for the trust. This may reduce conflicts among family members, while providing professional services. Fees are typically based on the size of the estate, which may be a consideration.

Another idea is to have more than one trustee to provide a balance of recordkeeping, investments and other trustee duties. A properly drafted trustee agreement, created by an experienced estate planning attorney, will outline specific duties of the trustees. An individual co-trustee might better understand your heir’s needs and be able to help other trustees in making decisions to benefit family members.

Reference: Kiplinger (Sep. 8, 2020) “Guidance on Choosing the Right Trustee (or Trustees) for Your Estate”

 

Estate Planning Different for Business Owners and Top-Level Executives

 

“Having an estate plan can ensure that fiduciaries are identified to oversee and distribute your assets in the way you would have wanted. As a business owner, your ownership assets in your estate may require a more sophisticated level of planning.”

Do you need an estate plan? If you have children, ownership shares in a business, or even in more than one business, a desire to protect your family and business if you became disabled, or charitable giving goals, then you need an estate plan. The recent article “Estate planning for business owners and executives” from The Wealth Advisor explains why business owners, parents and executives need estate plans.

An estate plan is more than a way to distribute wealth. It can also:

• Establish a Power of Attorney, if you can’t make decisions due to an illness or injury.
• Identify a guardianship plan for minor children, naming a caregiver of your choice.
• Ensure that assets are controlled through beneficiary designations rather than simply through a will and pass privately when owned through trusts. This includes retirement plans, life insurance, annuities and some jointly owned property.
• Create trusts for beneficiaries who are younger, disabled, or others you feel need some kind of protection.
• Identify professional management for assets in those trusts.
• Minimize taxes and maximize privacy through the use of planning techniques.
• Create a structure for your philanthropic goals.

An estate plan ensures that fiduciaries are identified to oversee and distribute assets as you want. Business owners, in particular, need estate plans to manage ownership assets, which requires more sophisticated planning. Ideally, you have a management and ownership succession plan for your business, and both should be well-documented and integrated with your overall estate plan.

Some business owners choose to separate their Power of Attorney documents, so one person or more who know their business well, as well as the POA holder or co-POA, are able to make decisions about the business, while family members are appointed POA for non-business decisions.

Depending on how your business is structured, the post-death transfer of the business may need to be a part of your estate plan. A current buy-sell agreement may be needed, especially if there are more than two owners of the business.

An estate plan, like a succession plan, is not a set-it-and-forget it document. Regular reviews will ensure that any changes are documented, from the size of your overall estate to the people you choose to make key decisions.

Reference: The Wealth Advisor (July 28, 2020) “Estate planning for business owners and executives”

 

How to Plan for Incapacity

“One in four American adults live with a disability, according to the Center for Disease Control. One in 10 adults over the age of 65 has Alzheimer’s or dementia, according to the Alzheimer’s Association.”

Planning for incapacity is just as important as planning for death. One is certain, the other is extremely likely. Therefore, it makes sense to prepare in advance, advises the article “Planning ahead for incapacity helps you and family” from The Press-Enterprise.

Let’s start by defining capacity. Each state has its own language but for the most part, incapacity means that a person is incapable of making decisions or performing certain acts. A concerned adult child is usually the one trying to have a senior parent declared incapacitated.

A person who has a mental or physical disorder may still be capable of entering into a contract, getting married, making medical decisions, executing wills or trusts, or performing other actions. However, before a person is declared incapacitated by medical professionals or a court, having a plan in place makes a world of difference for the family or trusted person who will be caring for them. Certain legal documents are needed.

Power of Attorney. This is the primary document needed in case of incapacity. There are several kinds, and an estate planning attorney will know which one will be best for your situation. A “springing” power of attorney becomes effective, only when a person is deemed incapacitated and continues throughout their incapacity. A POA can be general, broadly authorizing a named person to act on different matters, like finances, determining where you will live, entering into contracts, caring for pets, etc. A POA can also be drafted with limited and specific powers, like to sell a car within a certain timeframe.

The POA can be activated before you become incapacitated. Let’s say that you are diagnosed with early-stage dementia. You may still have legal capacity but might wish a trusted family member to help handle matters. For elderly people who feel more comfortable having someone else handle their finances or the sale of their home, a POA can be created to allow a trusted individual to act on their behalf for these specific tasks.

A POA is a powerful document. A POA gives another person control of your life. Yes, your named agent has a fiduciary duty to put your interests first and could be sued for mismanagement or abuse. However, the goal of a POA is to protect your interests, not put them at risk. Choosing a person to be your POA must be done with care. You should also be sure to name an alternate POA. A POA expires on your death, so the person will not be involved in any decisions regarding your estate, burial or funeral arrangements. That is the role of the executor, named in your will.

Advance health care directive, or living will, provides your instructions about medical care. This document is one that most people would rather not think about. However, it is very important if your wishes are to be followed. It explains what kind of medical care you do or do not want, in the event of dementia, a stroke, coma or brain injury. It gets into the details: do you want resuscitation, mechanical ventilation or feeding tubes to keep you alive? It can also be used for post-death wishes concerning autopsies, organ donation, cremation or burial.

The dramatic events of 2020 have taught us all that we don’t know what is coming in the near future. Planning in advance is a kindness to yourself and your family.

Reference: The Press-Enterprise (July 19, 2020) “Planning ahead for incapacity helps you and family”

 

What Must Be Done when a Loved One Dies?

 

“It can be hard to move through your daily life after someone you love dies. It may be even harder to embark on the complex tasks required to put their financial affairs in order. However, you can't afford to put that off.”

When a member of a family dies, it falls to the people left behind to pick up the pieces. Someone has to find out if the person left a last will, get the bills paid, stop Social Security or other automatic payments and file final tax returns. This is a hard time, but these tasks are among many that need to be done, according to the article “How to manage a loved one’s finances after they die” from Business Insider.

This year, more families than usual are faced with the challenge of taking care of the business of a loved one’s life while grieving a loss. When death comes suddenly, there isn’t always time to prepare.

The first step is to determine who will be in charge. If there is a will, then it contains the name of the person selected to be the executor. When a married person dies, usually the surviving spouse has been named as the executor. Otherwise, the family will need to work together to pick one person, usually the one who lives closest to the person who died. That person may need to keep an eye on the house and obtain documents, so proximity is a plus. In a perfect world, the person would have an estate plan, so these decisions would have been made in advance.

Don’t procrastinate. It is hard, but time is an issue. After the funeral and mourning period, it’s time to get to work. Obtain death certificates, and make sure to get enough certified copies—most people get ten or twelve. They’ll be needed for banks, brokerage houses and utility service providers. You’ll also need death certificates for taking control of some digital assets, like the person’s Facebook page.

The first agency to notify is Social Security. If there are other recurring payments, like VA benefits or a pension, those organizations also need to be notified. Contact banks, insurance companie, and financial advisors.

Get the person’s credit cards into your possession and call the credit card companies immediately. Fraud on the deceased is common. Scammers look at death notices and then go onto the dark web to find the person’s Social Security number, credit card and other personal identification info. The sooner the cards are shut down, the better.

Physical assets need to be secured. Locks on a house may be changed to prevent relatives or strangers from walking into the house and taking out property. Remove any possessions that are of value, both sentimental or financial. You should also take a complete inventory of what is in the house. Take pictures of everything and be prepared to keep the house well-maintained. If there are tenants or housemates, make arrangements to get them out of the house as soon as possible.

Accounts with beneficiaries are distributed directly to those beneficiaries, like payable-on-death (POD) accounts, 401(k)s, joint bank accounts and real property held in joint tenancy. The executor’s role is to notify the institutions of the death, but not to distribute funds to beneficiaries.

The executor must also file a final tax return. The final federal tax return is due on April 15 of the year after death. Any taxes that weren’t filed for any prior years, also need to be completed.

This is a big job, which is made harder by grief. Your estate planning attorney may have some suggestions for who might be qualified to help you. An attorney or a fiduciary will take a fee, either based on an hourly rate for services performed or a percentage of the entire value of the estate. If no one in the family is able to manage the tasks, it may be worth the investment.

Reference: Business Insider (May 2, 2020) “How to manage a loved one’s finances after they die”