A “financially comfortable” loved one has passed away, and you’re the one handling the aftermath. Unless you’ve done this before, you may grossly underestimate the magnitude of the task. This column identifies things you might need to consider above and beyond all the tax issues covered in these threeearliercolumns.
The role of the executor
When a loved one (the decedent) passes away, someone must take on the job of winding up the financial aspects of the estate. That person may be identified in the decedent’s will as the executor of the decedent’s estate. If a family trust holds the decedent’s assets, the trust document will designate a trustee. If there’s no will or trust, the probate court will appoint an administrator. In any of these scenarios, we will call that person the executor to keep things simple. That person might be you. If so, please read this.
The executor’s assignment is financial in nature: identify the estate’s assets, pay off the debts, and distribute the remainder to the rightful heirs and beneficiaries. The executor is also responsible for filing tax returns and paying tax liabilities.
As the executor, you may feel morally obligated to do much more. We will talk about what “much more” can include.
First things first: do you need a professional executor?
Maybe. If the decedent was wealthy with complicated financial affairs, hiring a professional executor might be a good idea for that reason alone. It takes some of the heat off you.
Another situation where a professional executor might be advisable is warring or just-plain-unreasonable heirs. This is not unusual in families of means. For example, one heir who has basically been living off the grid in New Zealand for the last 20 years might think the family homestead that will soon be put on the market is worth $10 million. The other heirs, who are much closer to the action, know it’s not worth over $5 million. The New Zealander thinks he’s getting shortchanged and is threatening to sue everybody and their brother. Literally. Or a financially challenged heir may be demanding his or her share “in cash right now” even though that’s clearly impossible. You get the idea. A professional executor can quash such nonsense without involving you. If you try to quash it on your own, I wish you the best of luck. A good estate planning attorney can recommend a good professional executor.
Whether you hire a professional executor or not, you may feel morally obligated to handle many things yourself. Keep reading.
Project management if you’re the executor
In the “financially comfortable decedent” scenario, the financial aspects of winding up the estate and all the ancillary tasks can involve lots of time-consuming work. The dollar stakes can be high, and there may be deadlines that pile on the pressure. So you must stay focused, set priorities, and stick to them. In other words, you’re in the project management mode, and some folks are better at project management than others. Even if you’re pretty good at it, personal experience suggests that most tasks you perform as the project manager will take about two-and-a-half times as long as you think. If you work under that assumption, you won’t be far off.
Must the estate go through probate?
Hopefully not. Many well-off individuals and married couples put their most valuable assets into a revocable trust (AKA family trust, living trust, or grantor trust). Reason: to avoid probate. If the decedent failed to take that step, probate is in the cards. Probate is a legal process that includes proving in court that the decedent’s will (if one exists) is valid, identifying the decedent’s assets and having them appraised, paying the estate’s debts and taxes, and finally distributing the remaining assets as specified by the will. If there’s no will, the remaining assets must be distributed according to applicable state law.
Probate usually involves lots of paperwork and some court appearances by attorneys. As you might imagine, this can get expensive. The estate pays the attorney fees and related court costs. While the extra cost of going through probate is bad enough, it can also delay winding up the estate for a long time. Heirs may be unhappy to hear this, and some may start looking for somebody to blame. Not good!
Thankfully, some assets can be passed to the rightful heirs and beneficiaries without going through probate. Examples include real property owned as joint tenants with right of survivorship (JTWROS), life insurance death benefits if the decedent designated policy beneficiaries, and retirement accounts if the decedent designated beneficiaries for the accounts.
For various reasons, you’ll need a death certificate to prove that the decedent has passed away. You may need originals for some purposes. Get at least five originals from the applicable source. Get more if the decedent had lots going on–like real estate owned in several jurisdictions. If in doubt, get more originals than you think you’ll need.
Married couple’s revocable trust probably needs updating
If the decedent was married, a revocable trust (AKA family trust, living trust, or grantor trust) may have been set up to hold the couple’s most important assets and thereby avoid probate for those assets. Both spouses are usually named as co-trustees. If so, the trust may have to be amended to eliminate the decedent as a co-trustee and add a new co-trustee (usually an adult child) to help the surviving spouse manage the trust’s assets. That new co-trustee may be you.
At the same time, consider whether the trust’s beneficiary and distribution provisions reflect current reality. If the trust was set up years ago, changes are probably necessary. Designated trust beneficiaries may have passed away, joined weird cults, married someone who the survivor despises, or greatly disappointed the survivor in any number of ways. There may be grandchildren who have never been added to the list of beneficiaries. There may be an adult beneficiary who has proven to be financially irresponsible and whose share must be made subject to age restrictions to protect him from himself. You get the idea.
Consult a good estate planning attorney to make any needed trust changes. Do it quickly, because nobody knows how much longer the surviving spouse will be with us. If the surviving spouse passes away before the desired changes are made, the trust–with all its uncorrected faults–becomes irrevocable. Not good!
The bottom line
I hope this gives you an idea of what you may face when winding up the affairs of a “financially comfortable” loved one. It can be an exhausting process that goes on for months. If you can hire pros to help, do it. Money well spent and sanity preserved.
Another thing to consider: Dealing with the family abode
We are not done yet if there is a family abode in the picture.
Selling a high-end home
In the “financially comfortable decedent” scenario, selling a high-end family home is often one of the executor’s tasks.
If the decedent was unmarried, the heirs (often adult children) will probably want to sell the place. In most areas, there are distinct home-selling seasons. Your friendly local realtor will “strongly encourage” you to get the place ready for sale during that season so you can sell for top dollar. The realtor works on commission and should be very motivated to get you top dollar–for your mutual benefit. That’s great, but you may be presented with a ready-for-sale deadline that’s much sooner than you would like. Pedal to the metal and all that.
If the decedent was married, the surviving spouse may want to downsize, move closer to relatives, or move to a low-tax state. If the surviving spouse is elderly, he or she may want to move into an assisted living environment. You may have to arrange for the surviving spouse’s move on top of arranging to sell the former marital abode. If so, there will be that many more moving parts (so to speak). If there’s a lot to be moved, you may want to hire a professional organizer and packer to help get the job done. Money well spent!
If the high-end home that must now be sold was lived in for many years, you’ll probably discover that there are many years’ worth of “stuff” packed into the place. All of that stuff must now find a new home. Some of it might be valuable. If there’s lots of valuable stuff that other interested parties won’t take off your hands (like a houseful of fine furniture, oriental rugs, antiques, and so forth), you may want to hire an estate liquidator. For stuff that’s not so valuable, consider an “estate sale” which may be just a glorified garage sale. If you advertise the sale in the local newspaper or online, call it an estate sale. It sounds better. Work with local charities that will hopefully arrive with trucks to take away stuff that cannot be sold.
However you choose to handle the disposition of all that stuff, it will be far more time consuming than you expect.
Title to the home may have to be changed
You may have to change the title to the home before it can be sold. For example, this can be the case if the home was owned by a revocable family trust to avoid probate. If the decedent was single, the trust is probably now an irrevocable trust, because the person who set it up has died. If so, title to the home may have to be changed to reflect that fact. If the home was owned by a revocable trust set up by a married couple, the trust may have to be amended to remove the decedent as a trustee. Title to the home may have to be changed to reflect that fact. There are other situations that may require changing title to the home. Consult a good real estate or estate planning attorney.
Other financial and practical considerations
The following is far from a complete list, but it’s a start.
Will there be enough cash and/or income for the surviving spouse to live comfortably without selling the marital abode?
If yes, the survivor may want to stay put. But if the survivor is elderly, that may just postpone all the inevitable home sale and relocation issues mentioned in the other SIDEBAR. It might be better to get the inevitable over with while the survivor is still physically and mentally healthy enough to participate in the process.
Is the surviving spouse ready to handle the finances?
Maybe not. Many married couples (especially older folks) delegate virtually all financial matters to one spouse. The surviving spouse may not be that person. If so, the survivor may not know to keep a check book; may have only a vague idea of all the bills to be paid; and may know next to nothing about the couple’s insurance policies, retirement accounts, and investments. Have the health insurance, homeowners insurance, and auto insurance premiums been paid? Have the property taxes been paid? Maybe not. If the decedent handled the finances and was fading, things may have fallen through the cracks without the other spouse having a clue. Yikes. Prepare to do some forensic accounting. And get ready to conduct a “personal finance for dummies” seminar for the survivor.
Check surviving spouse’s life insurance policies.
The now-deceased spouse may be the designated policy beneficiary. Not good! Designate new beneficiaries to avoid probate and other hassles when the survivor passes away.
Get retirement and investment accounts in order.
First you must find out if they exist, how big they are, and what investments they hold. You may need to liquidate some investments to pay the estate’s or the surviving spouse’s expenses. You may be able to arrange for multiple IRAs to be consolidated into a single account that can be more easily managed. And so on.
Check safe deposit boxes.
Get into them and deal with what you find. A valuable coin collection could be in a box. Property titles are likely to be in a box. There could be U.S. Savings Bonds worth thousands. Who knows? You’ll probably need a death certificate and maybe a power of attorney to invade the decedent’s box.
Taxes, taxes, taxes.
Yikes! See the links to my earlier columns at the top of this one.
Shut things down.
Depending on the circumstances, this could include utilities, garbage pickup, yard care, pool care, security monitoring, cable and communications services, and credit cards. Get computer hard drives wiped before donating the machines to charity.