Factors to Consider when Picking Trustee

November 3, 2022

Having your estate planning documents created with an experienced professional is important, as is naming the people who will be putting your plan into action. A key sticking point is often deciding who is the right person for the role, says an article from Nasdaq titled “Estate Planning: 5 Tips to Pick Trustees, Executors and POAs.” It helps to stop thinking about how people will feel if they are not selected and focus instead on their critical thinking and decision making abilities. There are some factors to consider when picking a trustee, executor or power of attorney.

Consider who will have the time to help. Having adult children who are highly successful in their professions is wonderful. However, if they are extremely busy running a business, leading an organization, etc., will their busy schedules allow the flexibility to help? A daughter with twins may love you to the moon and back. However, will she be able to handle the tasks of estate administration?

Take these appointments seriously. Selecting someone on an arbitrary basis is asking for trouble. Just because one child is older doesn’t necessarily mean they are capable of managing your estate. Making a decision based on gender can be equally flawed. Naming agents and executors with financial acumen is more important than giving your creative child the chance to learn how to manage money through your estate.

Don’t make the process more complicated. There are many families where parents name all the siblings to act on their behalf, so no one feels left out. This usually turns into an estate disaster. An odd number of siblings can lead to one group winning decisions by sheer numbers, while aggressive, win-at-all-costs siblings—even if it’s just two of them—can lead to delayed decisions and family divisions.

Name the right person for right now. Younger people who don’t yet have children often aren’t sure who their best agent might be. Picking a parent may become problematic, if the parent becomes sick or dies. Naming a close friend in your thirties may need updating if your friendship wanes. Make it simple: appoint the best person for today, with the caveat of updating your agents and documents as time goes on and circumstances change. Remember, circumstances always change.

Consider the value of a professional trustee or fiduciary. The best person to be a trustee, executor or power of attorney may not always be a family member or friend. If a trustee is one sibling and the beneficiary of the trust is another sibling who can’t manage money, the relationship could suffer. If a large estate includes generational trusts and complex ownership structures, a professional may be better suited to deal with management and tax issues.

The value of having an estate plan cannot be overstated. However, the importance of who will be appointed to oversee and administer the estate is equally important. The success of an estate plan often rests on the people who are assigned to handle their respective tasks.

Consider these factors seriously when picking a trustee or executor. Be candid when speaking with an experienced estate planning attorney about the people in your life and their abilities to manage the roles. If you would like to learn more about the role of a trustee or executor, please visit our previous posts.

Reference: nasdaq (Sep. 4, 2022) “Estate Planning: 5 Tips to Pick Trustees, Executors and POAs”

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Options in Managing Unequal Inheritances

September 21, 2022

Estate planning attorneys aren’t often asked to create estate plans treating heirs unfairly. However, when they do it usually is because a parent is estranged from one child and wishes to leave him or her nothing. When it comes to estate planning, equal isn’t the same as fair, explains the article “Are Unequal Inheritances Fair?” from Advisor Perspectives. There are options in managing unequal inheritances in your estate planning.

An example of this can be seen in the case of a widow with four adult children who asked an estate planning attorney how to approach distributing her assets. Three of her children were high-income earners, already building substantial net worth. A fourth child had mental health issues, limited education, had been in and out of jail and was unable to hold a job.

She understood that her fourth child needed the financial stability the others did not. She wanted to provide some support for him, but knew any money left directly to him would be gone quickly. She was considering leaving money for him in a trust to provide a monthly income stream, but also wanted to be fair to the other three children.

The trust would be the best option. However, there were problems to consider. If the estate were to be divided in four equal parts, the fourth child’s share of the estate would be small, so trustee fees would take a significant amount of the trust. If she left her entire estate for him, it would be more likely he’d have funding for most, if not all, of his adult life.

The worst thing the mother could do was to leave all the funds for the fourth child in a trust without discussing it with the other three siblings. Unequal inheritances can lead to battles between siblings, sometimes bad enough to lead them into a court battle. This is often the case where one child is believed by others to have unduly influenced a parent, when they have inherited all or the lion’s share of the estate.

Sibling fights can occur even when the children know about and understand the need for the unequal distribution. The children may suppress their emotions while the parent is living. However, after the parent dies and the reality sets in, emotions may fire at full throttle. Logically, in this case the three successful siblings may well understand why their troubled sibling needs the funds. However, grief is a powerful emotion and can lead to illogical responses.

In this case, the woman made the decision to leave her estate in equal shares to each child and giving the three successful siblings the options to share part of their inheritance with their brother. She did this by having her estate planning attorney add language in the will stating if any child wanted to disclaim or refuse any of their inheritance, it would pass to a trust set up for the troubled sibling. This gave each child the opportunity to help or not.

Was it a perfect solution? Perhaps not, but it was the best possible solution given the specific circumstances for this family. Speak with your estate planning attorney about your options in managing unequal inheritances. If you would like to learn more about inheritances, please visit our previous posts.

Reference: Advisor Perspectives (Aug. 22, 2022) “Are Unequal Inheritances Fair?”

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IRS Extending Time to File Portability Exemption

August 9, 2022

When a spouse dies, the surviving spouse has the option of taking the unused federal estate tax exclusion and applying it to their own estate. This is known as electing portability for the DSUE, Deceased Spousal Unused Exemption, according to a recent article “Estates can now request late portability election relief for 5 years” from the Journal of Accountancy. The IRS is extending the time it takes to file a portability exemption.

The portability exemption has grown in use, and the scheduled decrease in the estate tax exemption starting on January 1, 2026, will no doubt dramatically expand the number of people who will be even more eager to adopt this process.

The IRS has extended the amount of time a surviving spouse may elect to take the Deceased Spousal Unused Exclusion (DSUE) from two to five years. The expanded timeframe is a reflection of the number of requests for letter rulings from estates missing the deadline for what had been a two-year relief period. The overly burdened and underfunded agency needed to find a solution to an avalanche of estates seeking this relief. Most of the requests were from estates missing the deadline between two years and under five years from the decedent’s date of death.

To reduce the number of letter ruling requests, the IRS has updated the requirement by extending the period within which the estate of a decedent may make the portability election under the simplified method to on or before the fifth anniversary of the decedent’s death.

There are some requirements to use the simplified method. The decedent must have been a citizen or U.S. resident at the date of death and the executor must not have been otherwise required to file an estate tax return based on the value of the gross estate and any adjusted taxable gifts. The executor must also not have timely filed the estate’s tax return within nine months after the date of death or date of extended file deadline.

If it is determined later that the estate was in fact required to file an estate tax return, the grant of relief will be voided.

Note that this change doesn’t extend the period during which the surviving spouse can claim a credit or a refund of any overpaid gift or estate taxes on the surviving spouse’s own gift or estate return.

The decision by the IRS extending the time to file a portability exemption will become even more popular after December 31, 2025, when the federal exemption changes from $12.6 million per person to $5 million (adjusted for inflation). Given the rise in housing prices, even people with modest estates may find themselves coming close or exceeding the federal estate tax level. If you would like to learn more about the portability exemption, please visit our previous posts.

Reference: Journal of Accountancy (July 11, 2022) “Estates can now request late portability election relief for 5 years”

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How to Manage Investments when Someone Dies

July 13, 2022

Taking responsibility for a decedent’s probate or trust estate often involves managing significant amounts of wealth, whether they are brokerage accounts or cash assets. They will need to know how to manage investments when someone dies. Today’s volatile markets add another level of complexity to this responsibility. The article “Estate Planning: Investments during administration of decedent’s estate” from Lake County News explains what estate administrators, executors and trustees need to know as they take on these tasks.

Investment account values are in a constant state of change and may include assets now considered too risky because they are owned by the estate and not the individual. The administrator will need to evaluate the accounts in light of debts owed by the decedent, the costs in administering the estate and any gifts to be made before the estate will be closed.

At the same time, too much cash on hand could mean unproductive assets earning less than they could, losing value to inflation. If there is a long time between the death of the owner and the date of distribution, depending on markets and interest rates, having too much cash could be detrimental to the beneficiaries.

The personal representative or trustee, as relevant, may determine that the cash should be invested, shift how existing investments are managed, or decide to sell investments to generate cash needed for debts, expenses and distributions to beneficiaries.

A personal representative is not expected or required to be a stock market expert. Their duties are to manage estate assets as a person making prudent decisions for the betterment of the estate and heirs. They must put the interest of the estate above their own and not make any speculative investments. With the exception of checking accounts, the expectation is for estate accounts to earn something, even if it is only interest.

If the personal representative has the authority to do so, they may invest in very low-risk debt assets. If the will includes investment powers and if certain conditions safeguarding payment of the decedent’s debts and expenses are satisfied, the personal representatives may invest using those powers. In some instances, a court order may be needed. An estate planning attorney will be able to advise based on the laws of the state in which the decedent resided.

Learning how to manage investments when someone dies is a critical role for a trustee or executor. For a trust, the trustee has a fiduciary duty to invest and manage trust assets for beneficiaries. Assets should be made productive, unless the trust includes specific directions for the use of assets prior to distribution. The longer the trust administration takes and the larger the value of the trust, the more important this becomes.

In all scenarios, investment decisions, including balancing risk and reward, must be made in the context of an overall investment strategy for the benefit of heirs. Investments may be delegated to a professional investment advisor, but the selection of the advisor must be made cautiously. The advisor must be selected prudently and the scope and terms of the selection of the advisor must be consistent with the purposes and terms of the trust. The trustee or executor must personally monitor the advisor’s performance and compliance with the overall strategy. If you would like to learn more about managing investment account in an estate, please visit our previous posts.

Reference: Lake County News (June 11, 2022) “Estate Planning: Investments during administration of decedent’s estate”

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Becoming an Executor should be considered Carefully

July 12, 2022

Becoming an executor should be considered carefully before accepting or refusing. These decisions are usually made based on relationships and willingness to help the family after a loved one has died. Knowing certain processes are in place and many are standard procedures may make the decision easier, according to the useful article “Planning Ahead: Should you agree to serve as an executor?” from Daily Local News.

A family member or friend is very often asked to serve as executor when the surviving spouse is the only or primary beneficiary and not able to manage the necessary tasks. In other instances, estates are complex, involving multiple beneficiaries, charities and real estate in several states. The size of the estate is actually less of a factor when it comes to complexity. Small estates with debt can be more challenging than well-planned large estates, where planning has been done and there are abundant resources to address any problems.

Prepare while the person is alive. This is the time to learn as much as you can. Ask to get a copy of the will and read it. Who are the beneficiaries? Speak with the person about the relationships between beneficiaries and other family members. Do they get along, and if not, why? Be prepared for potential conflict with the estate.

Find out what the person wants for their funeral. Do they want a traditional memorial service, and have they paid for the funeral already? Any information they can provide will make this difficult time a little easier.

What are your responsibilities as executor? Depending on how the will is prepared, you may be responsible for everything, or your responsibilities may be limited. At the very least, the executor of an estate is responsible for:

Locating and preparing an inventory of assets
Getting a tax ID number and establishing an estate account
Paying final bills, including funeral and related bills
Notifying beneficiaries
Preparing tax returns, including estate and/or inheritance tax returns
Distributing assets and submitting a final accounting

If the person has an estate planning attorney, financial advisor and CPA, meeting with them while the person is alive and learning what you can about the plans for assets will be helpful. These three professional advisors will be able to provide help as you move forward with the estate.

These tasks may sound daunting but being asked to serve as a person’s executor demonstrates the complete trust they have in your abilities and judgment. Therefore, becoming an executor should be considered carefully. Yes, you will breathe a sigh of relief when you complete the task. However, you’ll also have the satisfaction of knowing you did a great service to someone who matters to you. If you would like to learn more about the role of the executor, please visit our previous posts.

Reference: Daily Local News (June19, 2022) “Planning Ahead: Should you agree to serve as an executor?”

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Firearms can be included in your Estate Plan

June 27, 2022

It’s common to focus on the big assets when creating an estate plan, like the family home, investment accounts and life insurance, but personal property also needs to be addressed, especially if the items are of great value or if ownership is complicated. This is especially the case regarding firearms, discussed in a recent article, “In the Crosshairs: Guns in Estate Planning” from The National Law Review. Firearms can be included in your estate plan.

Your executor, personal representative or successor trustee is the person who takes on the fiduciary role of administering your estate, according to the directions in your last will and testament. What seems like a relatively simple transfer of your favorite shotgun to a family member could lead to serious legal problems, if the family member is a “prohibited person.”

The Gun Control Act of 1968 made it unlawful for certain people to ship, transport, receive or possess firearms or ammunition. This group includes persons with mental illness, felons, dishonorable discharges or domestic violence convictions. Unless your executor knows the family member and can confirm they do not belong to any of these categories, the transfer and receipt of the firearm could constitute criminal behavior.

Geography could be an issue as well. A federal firearms license holder must be used to transfer the firearm, if the recipient lives in a different state. Since guns laws vary widely throughout the US, transfers are not straightforward. Something perfectly legal in one state may be a felony in another.

Laws about guns and related devices change also. After a mass shooting event in Las Vegas in 2017, the bump stock, a device used to allow more shots to be fired from an assault weapon was made illegal and owners were advised to surrender or destroy any bump stocks in their possession. If the fiduciary doesn’t know anything about firearms, they may unwittingly commit a felony.

The risks of transferring firearms can be addressed with informed planning. Gun trusts are used to protect and plan, especially for unique items like registered machine guns, suppressors, short barrel rifles and short barrel shotguns.

Firearms can be included in your estate plan. In recent years, the gun trust use has expanded to collectible firearms to preserve their use for future generations. Collectable firearms often are as expensive as collectible cars, so care must be taken to properly preserve and transfer them.

If firearms are in your home and you wish to pass them along to another family member, the best way to do this is with the help of an experienced estate planning attorney who can create a gun trust and help determine if the intended heir is permitted to inherit a gun. If you would like to learn more about addressing personal property in your planning, please visit our previous posts.

Reference: The National Law Review (May 10, 2022) “In the Crosshairs: Guns in Estate Planning”

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Choosing the right Executor is Crucial

June 16, 2022

When you pass away, it will be up to your executor or personal representative to handle all the paperwork after your death and the distribution of your assets. Choosing the right executor is crucial to your estate planning.

Fed Week’s recent article entitled “Considerations when Picking an Executor for Your Estate” suggest that one possibility is to name an independent party as your estate’s executor.

An executor or personal representative of an estate is a person or entity that’s appointed to administer the last will and testament of a deceased person. The executor’s main duty is to carry out the instructions to manage the affairs and wishes of the deceased.

The executor is appointed either by the testator of the will (the person who makes the will) or by a court, in the event where there’s no prior appointment in a will.

However, a bank trust department or even an independent trust company might serve as an executor.

While your family may not like paying fees to an executor, if you name a surviving relative as executor, he or she may face enormous pressure from heirs with competing claims.

It’s not unheard of for family disputes to occur.

It’s also important to point out that an executor assumes a fiduciary responsibility that may be better left to an institution. The executor of the estate is required to complete an estate tax return, pay any estate tax due and distribute the estate’s assets.

If that tax return is later audited and more tax is due, the executor is legally responsible. The other heirs may not be ready to give some of their money back to pay the tax. You can, therefore, see that there is at least one point of contention that could grow into a conflict.

However, if you name an institution, you shift that liability away from a family member.

If you don’t expect any tax or family problems with your estate, you can simply name a family member as executor. You can perhaps name an adult child, because a surviving spouse may be too overwhelmed to deal with everything.

However, a grown son or daughter who is conscientious and lives close might be a good choice.

In any case, your will should designate a backup executor. Choosing the right executor for your estate is crucial to ensuring a smooth distribution of your assets and an experienced estate planning attorney can help you make a decision that works best for you. If you would like to read more about the role of the executor, please visit our previous posts.

Reference: Fed Week (May 3, 2022) “Considerations when Picking an Executor for Your Estate”

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Conducting an Estate Inventory is Vital

June 1, 2022

When a loved one dies, it may be necessary for their estate to go through probate—a court-supervised process in which his or her estate is settled, outstanding debts are paid and assets are distributed to the deceased person’s heirs. An executor is tasked with overseeing the probate process. An important task for an executor is submitting a detailed inventory of the estate to the probate court. Conducting an estate inventory is vital to ensuring your probate is not problematic.

Yahoo Finance’s recent article entitled “What Is Included in an Estate Inventory?” looks at the estate inventory. During probate, the executor is charged with several duties, including collecting assets, estimating the fair market value of all assets in the estate, ascertaining the ownership status of each asset and liquidating assets to pay off outstanding debts, if needed. The probate court will need to see an inventory of the estate’s assets before distributing those assets to the deceased’s heirs.

An estate inventory includes all the assets of an estate belonging to the individual who’s passed away. It can also include a listing of the person’s liabilities or debts. In terms of assets, this would include:

Bank accounts, checking accounts, savings accounts, money market accounts and CDs
Investment accounts
Business interests
Real estate
Pension plans and workplace retirement accounts, such as 401(k)s, 403(b)s and 457 plans
Life insurance, disability insurance, annuities and long-term care insurance
Intellectual property, such as copyrights, trademarks and patents
Household items
Personal effects; and

Here’s what’s included in an estate inventory on the liabilities side:

Home mortgages;
Outstanding business loans, personal loans and private student loans;
Auto loans associated with a vehicle included on the asset side of the inventory
Credit cards and open lines of credit
Any unpaid medical bills
Unpaid taxes; and
Any other outstanding debts, including unpaid court judgments.

There is usually no asset or liability that’s too small to be included in the estate inventory. Working closely with an estate planning attorney to make sure you are conducting an estate inventory is vital to a smooth probate process. If you would like to learn more about probate, please visit our previous posts.

Reference: Yahoo Finance (Feb. 15, 2022) “What Is Included in an Estate Inventory?”

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Benefits of Pre-Planning Your Funeral

May 31, 2022

Yahoo Life’s recent article entitled “Should You Pre-Pay for Your Own Funeral as Part of Estate Planning?” says there are major benefits to pre-planning and even pre-paying your funeral now—no matter what your age or health status.

Most deathcare professionals agree that funeral pre-payment has valuable benefits for people of all ages and health statuses.

A major benefit to pre-planning and pre-paying is the emotional support and relief they offer family members and friends.

Maggie McMillan, vice president of the Los Angeles-based Wiefels Group and All Caring Solutions Cremation and Funeral Services, explains that “if and when the unexpected happens, you want everyone to already know what your wishes are, because that will make it easier when hard emotions inevitably come up after you are gone.”

Knowing that your family is prepared and taken care of with prepayment can also help alleviate your own stress and better your mental health.

Additional benefits of pre-planning for your funeral are that, depending on what method of pre-payment you get, you can often lock in a price guarantee on services and merchandise based on current pricing on the day that you plan. This can protect your family from industry inflation and price fluctuation.

Funeral costs double every decade, on average. Therefore, if you’re looking at pre-paying for a service that costs $3,000 today but didn’t pre-pay and pass away 10 years later, your fees might be upwards of $6,000 for the exact same service.

For some people, all aspects of pre-planning and paying may not seem the right option.

For instance, a plan that isn’t transferable to different states doesn’t make sense for individuals who move around frequently.

In that case, talking to loved ones about what your final wishes are (including where you’d like to end up, and the disposition method) would be a relief for them, in case the unthinkable happens.

Reference: Yahoo Life (Feb. 17, 2022) “Should You Pre-Pay for Your Own Funeral as Part of Estate Planning?”

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Incorporate Cryptocurrency into your Estate Plan

March 15, 2022

If you have $10 in a cryptocurrency wallet or $1 million stashed offline in cold storage, you need a plan to help your next of kin gain access when you die, especially if heirs are not familiar with the brave new world of digital money. That’s the no-nonsense message from a recent article titled “What Happens to Your Crypto When You Die? Make a Plan, Or Lose Your Investments Forever” from Next Advisor. It is estimated that early buyers of cryptocurrency have already lost millions or billions because they died without a succession plan or lost their wallet keys and were not able to access their accounts. You need to incorporate cryptocurrency into your estate plan.

Cryptocurrency is not small change today. It is here to stay.

Crypto estate planning is a balance between keeping the assets secure and accessible at the same time. Bitcoin and other cryptocurrencies are decentralized, meaning they are not issued by any country’s central banking authority. Unless another person has the right information to access the account, the assets will be gone permanently when you die. There is no paper trail and no 800-number to call.

The first step is to set up proper storage for the crypto and any other digital assets, like NFTs (non-fungible tokens) under a number of layers of security. You will need to set up tiered back-up accounts to store these assets, with varying layers of security.

If you buy and sell crypto on an exchange, loved ones may be able to access the exchange by signing into the company’s portal, similar to ones commonly used for banking, accounting, or financial investments. They need to know your password and username and will probably need access to your cell phone and email to receive a two-step verification code.

However, if you have significant sums of cryptocurrencies, you will need a more secure back-up option, which will be harder for executors to access. You will need to give your executor a crypto education as well as an estate plan.

There are centralized crypto exchanges, like Coinbase. There are hot wallets, also known as mobile wallets, that are not on a centralized platform and require a 12 or 24 word secret seed phrase to gain access. There’s also cold storage, which works like a digital safe via a USB drive. A 12 or 24 word secret seed phrase is also needed to recover or backup account information.

Your plan to pass these assets to the executor includes a physical copy of security phrases and a physical fireproof, waterproof lock box. Secure your cold storage hardware wallet—a private wallet key with a 12 or 24 word secret seed phrase—in the lockbox and make sure your executor knows the location of the safe and how to access it. Then, in one or preferably more than one separate location, store physical documents describing each digital wallet.

Describe each wallet in detail: is it an exchange, mobile wallet, or hardware wallet? Include all of the security keys, seed phrases, usernames, password information with instructions for each, including cell phone codes for the mobile wallets on your phone. Do not store anything on the internet.

You will likely need to educate family members about how crypto and other digital assets work. They may not be comfortable with this new kind of asset. An alternative is to liquidate digital currency into more traditional assets, by transferring the crypto from the wallet into a centralized exchange, then selling it for U.S. dollars. There will be taxes due, since the IRS recognizes selling crypto as selling assets. Incorporating cryptocurrency into your estate plan is a complicated process that should only be undertaken with the advise and guidance of your estate planning attorney. If you would like to learn more about protecting digital assets, please visit our previous posts.

Reference: Next Advisor (Feb. 17, 2022) “What Happens to Your Crypto When You Die? Make a Plan, Or Lose Your Investments Forever”

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Category: Executor

Factors to Consider when Picking Trustee

Options in Managing Unequal Inheritances

IRS Extending Time to File Portability Exemption

How to Manage Investments when Someone Dies

Becoming an Executor should be considered Carefully

Firearms can be included in your Estate Plan

Choosing the right Executor is Crucial

Conducting an Estate Inventory is Vital

Benefits of Pre-Planning Your Funeral

Incorporate Cryptocurrency into your Estate Plan

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