Category: Executor

Probate and estate administration

How to Perform the role of Executor Efficiently

Executors are frequently relatives or friends designated in a last will as the final administrator of a deceased person’s estate. If you agreed to serve as an executor, you likely are aware of some of the tasks you will face, closing accounts, inventorying assets and distributing bequests. Even when it’s a relatively simple situation — one spouse dies and leaves everything to the other — there can be a lot of paperwork involved. It certainly can get more complicated when a widow dies, and there are several children and numerous assets. AARP’s recent article entitled “How to Be a Good Executor of a Will or Estate” says being an executor is a tough job. So, heed these steps to make certain that when the time comes for you to serve, you honor the decedent, serve his or her heirs and learn how to perform the role of executor efficiently.

Communicate. Be sure that you understand the last will writer’s wishes. You can request that he or she be specific about what he or she truly wants to happen with the estate after his or her death. The last will writer can give an explanation in a last letter of instruction. It’s an informal document to be read after he dies that explains his or her decisions.

Do the paperwork. When the person passes away, you must find the last will (the original, not a copy). The last will and the death certificate must be filed with the probate court to get letters testamentary. This authorizes the executor to take any actions required to administer the estate. Get at least a dozen extra certified copies of the death certificate because you’ll need these to cancel credit cards, sell a home, transfer title to a car and turn off the utilities.

Safeguard property. A vacant house may attract thieves who scan the obituaries, as well as relatives and neighbors who think they’re entitled to help themselves. After the death, lock up and secure the property. Move jewelry and other valuables to a safe place. Also, take pictures of the home’s interior to document its contents.

Get organized. The executor must maintain and sell an unoccupied house, stop Social Security payments, pay debts, close financial accounts and file taxes. Start a detailed to-do list, keep good records and create a list of assets and liabilities.

Get a thick skin. Closing out an estate entails managing the emotions of heirs. They also may be your siblings who are resentful of the authority you have been given. If so, give them regular updates to smooth bad feelings that may arise. Total transparency is best.

Distribute personal items. This can be a difficult process, so put a system in place to fairly divide the possessions. Even the most ordinary item may have deep sentimental value to an heir and could cause stress for the executor without your guidance.

Educate the heirs. Heirs and beneficiaries can’t be paid, until all taxes and debts of the estate are settled. Let them know that it may take many months before they’ll receive payment.

Final steps. Lastly, the executor must pay any debts and taxes owed by the estate, distribute the estate property and give an accounting for the estate to the beneficiaries.

If you have questions about how to perform the role of executor efficiently, ask an experienced estate planning attorney.

If you are interested in learning more about the role of Executor, please visit our previous posts.

Reference: AARP (May 7, 2021) “How to Be a Good Executor of a Will or Estate”

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Do You Have to Probate an Estate when Someone Dies?

Do You Have to Probate an Estate when Someone Dies?

Do You Have to Probate an Estate when Someone Dies? That is a question estate planning attorneys here almost every day. Probate is a Latin term meaning “to prove.” Legally, a deceased person may not own property, so the moment a person dies, the property they owned while living is in a legal state of limbo. The rightful owners must prove their ownership in court, explains the article “Wills and Probate” from Southlake Style. Probate refers to the legal process that recognizes a person’s death, proves whether or not a valid last will exists and who is entitled to assets the decedent owned while they were living.

The probate court oversees the payment of the decedent’s debts, as well as the distribution of their assets. The court’s role is to facilitate this process and protect the interests of all creditors and beneficiaries of the estate. The process is known as “probate administration.”

Having a last will does not automatically transfer property. The last will must be properly probated first. If there is a last will, the estate is described as “testate.” The last will must contain certain language and have been properly executed by the testator (the decedent) and the witnesses. Every state has its own estate laws. Therefore, to be valid, the last will must follow the rules of the person’s state. A last will that is valid in one state may be invalid in another.

The court must give its approval that the last will is valid and confirm the executor is suited to perform their duties. Texas is one of a few states that allow for independent administration, where the court appoints an administrator who submits an inventory of assets and liabilities. The administration goes on with no need for probate judge’s approval, as long as the last will contains the specific language to qualify.

If there was no last will, the estate is considered to be “intestate” and the laws of the state determine who inherits what assets. The laws rely on the relationship between the decedent and the genetic or bloodline family members. An estranged relative could end up with everything. The estate distribution is more likely to be challenged if there is no last will, causing additional family grief, stress and expenses.

The last will should name an executor or administrator to carry out the terms of the last will. The executor can be a family member or a trusted friend, as long as they are known to be honest and able to manage financial and legal transactions. Administering an estate takes time, depending upon the complexity of the estate and how the person managed the business side of their lives. The executor pays bills, may need to sell a home and also deals with any creditors.

The smart estate plan includes assets that are not transferrable by the last will. These are known as “non-probate” assets and go directly to the heirs, if the beneficiary designation is properly done. They can include life insurance proceeds, pensions, 401(k)s, bank accounts and any asset with a beneficiary designation. If all of the assets in an estate are non-probate assets, assets of the estate are easily and usually quickly distributed. Many people accomplish this through the use of a Living Trust.

Do You Have to Probate an Estate when Someone Dies? It depends on how your estate plan was created. Every person’s life is different, and so is their estate plan. Family dynamics, the amount of assets owned and how they are owned will impact how the estate is distributed. Start by meeting with an experienced estate planning attorney to prepare for the future.

If you are interested in learning more about probate and trust administration, please visit our previous posts. 

Reference: Southlake Style (May 17, 2021) “Wills and Probate”

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Tax Liabilities when a Loved One Dies

Sooner or later, someone has to resolve the tax liabilities when a loved one dies. It is usually a family member who faces this task. For one woman, the unexpected passing of her father in early 2018 left her the task of filing his 2017 return and the family’s estate planning attorney filed the 2018 return through the father’s estate. The family is still waiting for the 2017 tax refund from the IRS, and needs to resolve a stimulus check for $1,200 her family received last spring that had to be sent back.

Many families are facing similar situations, as reported in this recent article “Death and taxes: Americans grapple with filing the final tax return for deceased relatives in a pandemic year” from USA Today. Survivors are anxious about complex tax issues at the same time they are in mourning for a loved one.

The final tax return uses IRS Form 1040, the same one that would have been used if the taxpayer were living. The major difference: the word “deceased” is written after the taxpayer’s name.

If the taxpayer was married, the surviving spouse may file a joint return for the year of death. For two years after the taxpayer’s death, the surviving spouse may file as a qualifying widow or widower, which lets them continue to use the same tax brackets that apply to married-filing-jointly returns.

The larger the estate and income for a loved one, the more complicated taxes after death can become. Estate planning attorneys recommend naming an executor in the will and tasking them with taking care of final taxes.

The estate tax is paid on assets owned at the time of death. As of this writing, estates valued at more than $11.7 million (or $23.4 million per married couple), pay a 40% federal tax, in addition to state estate or inheritance taxes, if there are any. It is generally expected that the coming months will see a large reduction in the federal estate tax exemption.

The deadline to file a final return is the tax filing deadline of the year following the loved one’s death. The executor or administrator is usually the person who signs the tax return, although a surviving spouse signs the joint return. If there is no executor, whoever is responsible for filing the return signs it and should note that they are signing on behalf of the decedent. For a joint return, the spouse signs the return and writes “filing as surviving spouse” in the space for the other spouse’s signature.

There’s one more step if a return is due. If the deceased is owed money, the IRS Form 1310 should be used. That’s the Statement of a Person Claiming Refund Due a Deceased Taxpayer. The IRS says that surviving spouses signing a joint return don’t have to file this form, but tax experts think it’s a good idea to try to proactively prevent any delays.

If there are tax liabilities when a loved one dies, the tax bill is to be settled by the estate’s executor. If there are insufficient funds to pay the federal income and estate taxes, relatives are not responsible for the remaining balance.

Note that the executor may be held liable if the assets are distributed before paying the taxes, or if the debts of the estate are paid before taxes are paid. The same is true if the executor is aware of the insufficient funds and inability to pay the taxes but spends assets anyway.

Talk with an estate planning attorney about the taxes that will need to be paid from an estate. You don’t want to leave a legacy of tax pain for the family. If you would like to learn more about tasks to complete when a loved one dies, please visit our previous posts.

Reference: USA Today (April 22, 2021) “Death and taxes: Americans grapple with filing the final tax return for deceased relatives in a pandemic year”

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Deciding Who will Serve as Executor

Perhaps the most important choice to make in crafting a will is deciding who will serve as executor. Executor, executrix or personal representative, whatever name you use, is the person who will be in charge of your estate and follow the directions in your last will and testament. The first thing clarified in a recent article titled “Estate Planning: Non-family member personal representatives” from nwi.com, is that the person does not have to be a family member.

This is often a surprise to people, who think an adult child or sibling is the only person who can take on this responsibility. This is not true. There is no requirement that a relative be named—anyone you decide may serve as executor.

There are some requirements, which vary from state to state. However, for the most part include the following: the person has to be a legal adult, must not be incapacitated, and cannot be a felon or an “undesirable” person. As long as they are an upstanding member of the community, they may serve.

What are your choices? Some people prefer a family member, even if it is a distant relative or someone with whom they do not have a great relationship. It may take some digging to identify distant relatives. You may also have no idea how someone you don’t know will manage your estate. You should also contact them to be sure they will accept the responsibility. Without having an established relationship, they may decline.

An alternative is a trusted friend, as long as they meet the criteria noted above.

Another option is an institution that holds trust powers, such as a bank’s trust department. Community banks and some national banks do offer traditional trust services, including estate administration. There will be fees, but the experienced and impartial management of your estate may make this a better choice.

Some estate planning law firms serve clients in this role. Talk with your attorney to see if this is a service the firm offers. If the firm does not do this, they may have relationships with other professionals or institutions that can help.

One final note: don’t delay creating an estate plan because you cannot decide who will serve as your executor. Selecting someone for this role is not always an easy or obvious choice, but your estate planning attorney will be able to help you make the decision. Not having an estate plan is far worse than not knowing who to name as your executor.

If you would like to learn more about the role of the executor in an estate plan, please visit our previous posts. 

Reference: nwi.com (April 18, 2021) “Estate Planning: Non-family member personal representatives”

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Understand the limits of a Power of Attorney

Power of attorney is an important tool in estate planning. The recent article “Top Ten Facts About Powers of Attorney” from My Prime Time News, explains how a POA works, what it can and cannot do and how it helps families with loved ones who are incapacitated. It is important to understand the limits of a Power of Attorney.

The agent’s authority to powers of attorney (POA) is only effective while the person is living. It ends upon the death of the principal. At that point in time, the executor named in the last will or an administrator named by a court are the only persons legally permitted to act on behalf of the decent.

An incapacitated person may not sign a POA.

Powers of Attorney can be broad or narrow. A person may be granted POA to manage a single transaction, for example, the sale of a home. They may also be named POA to handle all of a person’s financial and legal affairs. In some states, such as Colorado, general language in a POA may not be enough to authorize certain transactions. A POA should be created with an estate planning attorney as part of a strategic plan to manage the principal’s assets. A generic POA could create more problems than it solves.

You can have more than one agent to serve under your POA. If you prefer that two people serve as POA, the POA documents will need to state that requirement.

Banks and financial institutions have not always been compliant with POAs. In some cases, they insist that only their POA forms may be used. This has created problems for many families over the years, when POAs were not created in a timely fashion.

In 2010, Colorado law set penalties for third parties (banks, etc.) that refused to honor current POAs without reasonable cause. A similar law was passed in New York State in 2009. Rules and requirements are different from state to state, so speak with a local estate planning attorney to ensure that your POA is valid.

Your POA is effective immediately, once it is executed. A Springing POA becomes effective when the conditions specified in the POA are met. This often includes having a treating physician sign a document attesting to your being incapacitated. An estate planning attorney will be able to create a POA that best suits your situation.

If you anticipate needing a trust in the future, you may grant your agent the ability to create a trust in your POA. The language must align with your state’s laws to achieve this.

Your agent is charged with reporting any financial abuse and taking appropriate action to safeguard your best interests. If your agent fails to notify you of abuse or take actions to stop the abuser, they may be liable for reasonably foreseeable damages that could have been avoided.

The agent must never use your property to benefit himself, unless given authority to do so. This gets sticky, if you own property together. You may need additional documents to ensure that the proper authority is granted, if your POA and you are in business together, for example.

It is important to understand the limits of a Power of Attorney. Every situation is different, and every state’s laws and requirements are different. It will be worthwhile to meet with an estate planning attorney to ensure that the documents created will be valid and to perform as desired.

If you are interested in learning more about Powers of Attorney, please visit our previous posts. 

Reference: My Prime-Time News (April 10, 2021) “Top Ten Facts About Powers of Attorney”

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It is important to talk to your children about your estate planning

Talk to Your Children about Your Estate Planning

It is important to talk to your children about your estate planning. Some $68 trillion will move between generations in the next two decades, reports U.S. News & World Report in the article “Discuss Your Estate Plan With Your Children.” Having this conversation with your adult children, especially if they are members of Generation X, could have a profound impact on the quality of your relationship and your legacy.

Staying on top of your estate plan and having candid discussions with your children will also have an impact on how much of your estate is consumed by estate taxes. The historically high federal exemptions are not going to last forever—even without any federal legislation, they sunset in 2025, which isn’t far away.

One of the purposes of your estate plan is to transfer money as you wish. What most people do is talk with an estate planning attorney to create an estate plan. They create trusts, naming their child as the trustee, or simple wills naming their child as the executor. Then, the parents drop the ball.

Talk with your children about the role of trustee and/or executor. Help them understand the responsibilities that these roles require and ask if they will be comfortable handling the decision making, as well as the money. Include the Power of Attorney role in your discussion.

What most parents refuse to discuss with their children is money, plain and simple. Children will be better equipped, if they know what financial institutions hold your accounts and are introduced to your estate planning attorney, CPA and financial advisor.

You might at some point forget about some investments, or the location of some accounts as you age. If your children have a working understanding of your finances, estate plan and your wishes, they will be able to get going and you will have spared them an estate scavenger hunt.

If possible, hold a family meeting with your advisors, so everyone is comfortable and up to speed.

Most adult children do not have the same experience with taxes as parents who have acquired wealth over their lifetimes. They may not understand the concepts of qualified and non-qualified accounts, step-up in cost basis, life insurance proceeds, or a probate asset versus a non-probate asset. It is critical that they understand how taxes impact estates and investments. By explaining things like tax-free distributions from a Roth IRA, for instance, you will increase the likelihood that your life savings aren’t battered by taxes.

Even if your adult children work in finance, do not assume they understand your investments, your tax-planning, or your estate. Even the smartest people make expensive mistakes, when handling family estates.

Having these discussions is another way to show your children that you care enough to set your own ego aside and are thinking about their future. It’s a way to connect not just about your money or your taxes, but about their futures. Knowing that you purchased a life insurance policy specifically to provide them with money for a home purchase, or to fund a grandchild’s college education, sends a clear message. So talk to your children about your estate planning. Don’t miss the opportunity to share that with them, while you are living.

If you would like to learn more about family communication and estate planning, please visit our previous posts. 

Reference: U.S. News & World Report (Feb. 17, 2021) “Discuss Your Estate Plan With Your Children”

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Creating a Letter of Last Instruction

It is important to know that a Letter of Last Instruction does not pass through a legal process. It’s an informal but organized method of providing your family with instructions on the decisions related to financial and personal matters that should be made when you die. This can also be an alternative way of ensuring that your family are cared for after your death and to prevent issues that could arise from not probating the will. There are things you need to know when creating a letter of last instruction.

Qrius’ recent article entitled “How to Prepare a Letter of Last Instruction” explains that preparing it can relieve your relatives of added headaches and stress after your death because it can provide crucial information on personal, financial and funeral matters. Here are some ideas as to what to include when creating your letter of last instruction:

Personal info. This is a basic information like your full name, date of birth, father’s name and mother’s maiden name, address, Social Security number and place of birth. Add information about significant people in your life, like family, friends, business partners, clergy and others you’d like to be notified about your death.

Business and Financial Contacts. List the contact info of your business and financial partners, as well as your accountant and investment adviser. Include information on your insurance policies, as well as your bank account details.

Legal Document Location. Make sure your executor can find important legal documents, such as your will, tax returns, marriage license, Social Security card, birth certificates, trust documents, deeds, veteran benefits info and contracts. State the location of those documents in your Letter of Last Instruction.

Loan and Debt Info. Make a list of creditors containing collateral and payment terms, along with any credit card account numbers and loan account numbers. Likewise, list the people who owe you money, including their contact info and collateral and payment terms.

Usernames and Passwords. Include a section with your usernames and passwords for your online banking accounts, social media email, computer, smartphone and other electronics, so your executor or someone responsible for overseeing your estate can be certain your accounts and financial information are not compromised after your death.

Beneficiaries. Make a list of the names and contact details of all your beneficiaries with additional information on specific instructions you may want to give to clarify your intentions on the distribution of the assets.

Funeral Arrangements. Include your desires as to your funeral arrangements, such as the type of flowers, pictures and service music. You can also state the clothes in which you wish to be buried, the type of service and location and other items that will help your family with this task.

Once you have the letter, be sure your executor or at least a close family member knows where it can be located after your death.

Ask an experienced estate planning attorney for pointers on creating your letter of last instruction and keep updating it regularly.

If you would like to learn more about letters of instruction, and other instruments in an estate plan, please visit our previous posts.

Reference: Qrius (Dec. 8, 2020) “How to Prepare a Letter of Last Instruction”

 

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Estate Planning Presents Emotional Challenges

More than two-thirds of all advisors surveyed by Key Private Bank said the hardest part of estate planning is navigating family dynamics, according to a 2019 survey. The sensitivity of simply talking about estate planning presents emotional challenges to putting a plan in place, especially when the family includes multiple marriages and blended families.

Advice is offered in a recent news article from CNBC, “Executor of a Family Estate? Here’s How to Avoid Infighting Over Inherited Wealth.”

Much of the problem, experts say, stems from poor communication. A dialogue needs to be open between generations that is a two-way conversation. In most instances, the older generation needs to invite the younger generation to get the ball rolling.

A lack of clarity and transparency can lead to problems. One example is a father leaving the family farm to his children, with a plan that also included money to help run the farm and legal documents to help the transition go smoothly. However, the children didn’t want the farm. They wanted to sell. Disagreements broke out between siblings, and the family was bogged down in a big fight.

Clearly Dad needed to talk with the children, while his estate plan was being created. The children needed to be upfront and honest about their plans for the future, and the issue could have been solved before the father’s death. The lesson: talk about your wishes and your children’s wishes while you are living.

After someone dies, they may leave behind an entire estate, with a lifetime of personal items that they want to gift to family members. However, if these items are not listed in the will, the heirs have to decide amongst themselves who gets what. This is asking for trouble, whether the items have sentimental or financial value. In fact, sentimental items often generate the most controversy.

When conflicts arise, the presence of a third party who doesn’t have emotional attachments and is not embroiled in the family dynamics can be helpful.

If the issue is not addressed before death, there are a few ways to move forward. An estate planning attorney who has seen many families go through the emotional challenges of estate planning can offer suggestions while the will is being prepared. There are facilitators or mediators who can help, if things get really rocky.

Heirs may wish to create a list of items that they would like to be reviewed by the executor. This option works best, if the executor is not a sibling, otherwise charges of favoritism and “Mom always liked you best” can spiral into family spats.

Some families group items into buckets of equal value, others set up a lottery to determine who picks first, second, etc., and some families literally roll the dice to make decisions.

If you would like to learn more about inheritance and distributing personal property, please visit our previous posts. 

Reference: CNBC (Nov. 12, 2020) “Executor of a Family Estate? Here’s How to Avoid Infighting Over Inherited Wealth”

 

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The Responsibilities of a Trustee

Before accepting the role of a trustee, it is important to have a thorough understanding of the responsibilities of a trustee. Trustees are often appointed to manage trust assets for a child or adult with special needs. This responsibility could be for a lifetime, so be sure that you are up for the task. Trustee duties are outlined in a recent article, “Things a Trustee needs to know,” from InsuranceNewsNet.com.

When the person who set up the trust, known as the “grantor,” dies, the trustee is in charge of settling the trust. That includes tasks like:

1–Locating and reviewing all of the documents of the grantor, especially any funeral and burial instructions.

2–If the grantor owned a home or an apartment, changing the locks for security, notifying the homeowner’s insurance company, if the house will be unoccupied for an extended period of time, and checking on auto insurance policies, if there are cars or other vehicles.

3–The trustee needs to obtain multiple originals of the death certificate, unless the executor is taking care of this task. These are usually ordered by the funeral director.

4–Listing all assets with the Date of Death (DOD) values of any assets. This determines the “cost basis” of assets that are to be transferred to beneficiaries. If assets are later sold and used to distribute proceeds, the cost-basis is used to determine income tax liability.

5–Consolidate multiple financial accounts into one account. The check register will become a register of trust activities and beneficiaries may inspect it. The trustee’s first responsibility is to protect the trust’s funds.

6–Pay outstanding bills and debts. The trustee may be personally liable, so it is their responsibility if this is not handled correctly.

7–Meet with an estate planning attorney to determine if the trust must file income tax returns or if the estate of the grantor must file income tax returns.

8–File claims for life insurance, IRAs and annuities.

9–Create an accounting for all trust financial activity from the grantor’s DOD to be distributed to the beneficiaries.

10–Transfer assets to beneficiaries according to the terms of the trust and have an estate planning attorney send each beneficiary a receipt, release and waiver for any further responsibility and liability.

The responsibilities of a trustee are similar to the responsibilities of an executor, except that wills are used in probate court and trusts are created to avoid probate court. Another benefit of trusts is that they can help avoid litigation between beneficiaries and keep the estate’s affairs private.

If you would like to learn more about the role of a trustee, please visit our previous posts. 

Reference: InsuranceNewsNet.com (Oct. 19, 2020) “Things a Trustee needs to know”

 

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Distribution of Personal Property in Your Estate

Creating and probating a last will and testament is rarely a simple task, but one of the most challenging aspects is the distribution of personal property in your estate, warns the article “Be clear about personal property distribution in your will” from The News-Enterprise. The nature of personal property—that it is relatively low in market value but high in sentimental value—is just part of the problem.

You’d be surprised how many families fight over a favorite ceramic dish or an inexpensive oil painting. However, those fights slow down the process of settling the estate and can create unnecessary costs.

The distribution of personal property is usually part of the residual estate, that which is left over when other assets, like a home, bank accounts, etc., have been distributed. Some families don’t even have a chance to select items, and instead find themselves in irrational bidding wars at estate sales.

This issue may be avoided by having precise language in the last will and testament about these items. First, the testator, the person who is creating the will, should outline the specific items they want to be given to specific people. Promised items should be listed and removed from the general pool of personal property.

Next, the testator names who should be included in the distribution of remaining personal property. While some people list the same recipients of the full estate, this is not always the case, particularly if there are no children or if property is being left to charity. One option is to limit the beneficiaries of personal items to only close family members.

Third, provide clear directions for how the remaining items will be distributed. Will beneficiaries take turns in a defined order? Should the property be appraised, and values being divided equally by the executor? Be as specific as possible.

If there are any unclaimed items, provide instructions for those as well. Do you want a collection of expensive cookware to be sent to a charitable organization? Clothing, furniture, and other items should be either donated to charity or sold at an estate sale, with the proceeds distributed between the beneficiaries.

Another way to avoid conflicts over personal property is to give away items, while you are living. Sentimental gifts are a good alternative for holiday gifts, especially for seniors on a fixed budget. This way the items are clearly out of the estate.

A warning for those who are thinking about taking the “sticky note” system: it rarely goes off without a hitch. Attaching stickers to items with the name of the person who you want to receive them is vulnerable to someone else removing the stickers. Similarly, naming one person to distribute all personal items could lead to strife between family members. There’s no legally enforceable way to ensure that they will follow your wishes.

Address the issue of personal property with your estate planning attorney. They will be able to help determine the least acrimonious means of ensuring that the people you want will end up with the things you want.

If you would like to learn more about distributing assets in your estate planning, please visit our previous posts. 

Reference: The News-Enterprise (Sep. 29, 2020) “Be clear about personal property distribution in your will”

 

Information in our blogs is very general in nature and should not be acted upon without first consulting with an attorney. Please feel free to contact The Wiewel Law Firm to schedule a complimentary consultation.
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