TABLE OF CONTENTS
Post Mortem Matters
Settling the Estate
Will your estate plan work for you? To help you answer this question we address factors surrounding estate settlement, beginning with the subject of incapacity. Thereafter, we address post mortem issues. Finally, we revisit both subjects, but from the perspective of the people (agents, trustees and executors) who surround (assist) the person who has either become incapacitated or died.
Imagine a Time When You Cannot Make Your Own Decisions
In this section, we discuss how an estate plan actually works when the person whose plan it is, is no longer able to make decisions because of incapacity. Whose plan is it anyway? Our goal is to help clients create plans that work for them. We ask these questions: Do you have an estate plan? Do you understand what it says? Do you like what it says? Are your assets owned (titled) in a manner consistent with your goals? If the answers to these questions are yes, your plan should be in pretty good shape.
As estate planners, we want to help you plan for:
- Controlling things while you are alive and well;
- Planning for you and your loved ones if you become incapacitated; and
- Giving what you have to whom you want, when you want, and the way you want.
To test whether or not your plan takes care of you and your loved ones if you become incapacitated, imagine you are unable to make decisions and ask yourself the following questions:
- Is the person I named as my agent willing to serve?
- If not, who is my alternate agent and is s/he willing to serve?
- Am I being cared for the way I want?
- Am I receiving the medical care I want?
- Am I not receiving the medical care I don’t want?
- Are my people (agents and family members) communicating effectively among each other?
Continue the self-examination in this imaginary mode. Is my agent (or Trustee) using my assets in a manner consistent with my goals? Is my agent continuing to make gifts to my individual and charitable beneficiaries the way I hoped s/he would? Is my agent making adjustments to my estate plan in order to qualify me for government benefits such as Medicaid? Is my agent taking steps to minimize my income and estate tax liability? Is my agent taking steps to protect assets for a recently incapacitated beneficiary?
These questions (and others) go to the core of the second prong of most, if not all, estate plans. If you are uncomfortable with your answers, you should update your plan.
POST MORTEM MATTERS
Transferring Assets at Death
Assets may be transferred at death by will or a “will substitute.” “Will substitute” is not a legal term, but a term of convenience describing a variety of means by which assets may be transferred at death. The most commonly used forms of will substitutes are: revocable trusts; beneficiary designations such as those on life insurancepolicies, annuities or retirement accounts; pay on death accounts; and accounts held with another person as joint tenants with rights of survivorship.
Transferring assets is only part of the equation. To test whether or not your plan gives what you have to whom you want, when you want, and the way you want, imagine you are no longer living and ask yourself the following questions:
- What does money/property mean to you and your beneficiaries?
- What is the best way to give assets to your beneficiaries? (Including your spouse, if you are married.)
- What impact do you want your estate to have on your beneficiaries?
- Would leaving assets in a protective trust for your beneficiaries be more beneficial to them than an outright gift?
- Does one or more of your beneficiaries have a disability or an addiction? Are they in a bad relationship, in a risky profession or subject to other liabilities? If so, providing asset protection for that beneficiary may be important.
- Are you and your spouse comfortable with the survivor’s ability to manage the inherited assets?
- Do your beneficiaries have children? If you have grandchildren, how do you want to take care of them? You may need to consider the consequences of a young adult with large sums of money left to his own devices.
- Do you have married children? You may need to consider protecting your child’s inheritance from the claims of an ex-spouse.
- What charities have been important to you during your life? What charities do you want to remember at your death?
- Will your beneficiary’s or your estate be subject to estate tax? If yes, you may want to consider asset protection trusts and other tax saving techniques.
Whatever the means used to transfer assets, when someone dies, his/her estate must be settled. The process of estate settlement involves gathering assets, paying bills and distributing the remaining property among the decedent’s beneficiaries.
Definitions of Estate
In its broadest sense, the term “estate” includes all property and property interests owned by the decedent at the time of death. This is sometimes called the “gross estate” or the “taxable estate.” It is what the government looks at when determining whether or not an estate tax is due. Assets titled in the decedent’s name, the decedent’s revocable trust, and jointly titled assets owned by the decedent and another person are all included in the gross estate. Even the value of a life insurance policy where all the decedent “owned” was the right to change the beneficiary of the policy, is included.
Two other definitions of “estate” are important to understand: “probate estate” and “trust estate.” Both are subsets of the gross estate. The probate estate includes all property owned by the decedent in his/her name alone, including assets controlled by beneficiary designations (such as IRAs and life insurance policies) where there is no named beneficiary. The disposition of these assets is controlled by the decedent’s will. If the decedent has no will, they are controlled by the laws of intestacy – the legislature’s best guess as to what the decedent would have wanted. In either case, the administration of these assets is completed within the probate court. The trust estate includes all assets owned by, or payable to, the Trustee of the decedent’s trust. Not surprisingly, the disposition of these assets is controlled by the terms of the trust.
How Long Does Probate Take?
Probate administration is the judicial process of settling an estate. Initially, a petition is filed with the local probate court. The judge then appoints a person (referred to as “the executor” if the decedent had a will or as “the administrator” if the decedent died intestate) to administer the estate. Frequently, the executor will hire a probate attorney to assist him/her with the process. If things go smoothly, the probate process typically takes 8 to 12 months to complete. If estate taxes are due, it usually takes an additional 6-12 months before the estatecan be closed. In our experience, it is easier to settle a probate estate in Vermont than in New Hampshire. Getting the executor appointed in New Hampshire can take upwards of 2 months, while in Vermont appointments are typically made within a week of application. Until the executor is appointed, no one has authority to liquidate assets or pay estate obligations. This is particularly difficult, and potentially costly to the estate, in the volatile equity markets we have seen over the last 2-3 years.
Trust administration is similar to probate administration except settlement takes place outside of the probate court. With a fully funded trust (i.e., where all of decedent’s assets were titled in the Trustee’s name or were payable to the Trustee) no probate is required and trust administration can be completed within two to four months. Again, additional time is required if estate taxes are due.
Other factors causing the estate settlement to take longer than these estimates include resolving difficult debts, which sometimes involves litigation; locating assets (and sometimes beneficiaries); dividing personal property among bickering beneficiaries; and selling real estate and hard-to-value property.
Many people want to avoid probate. We believe this is because most unplanned estates end up in probate and there are frequently difficult challenges in settling those estates. Typically, the problems are not caused by probate, but rather by a lack of planning. In our experience, the most compelling reason to avoid probate is to avoid the delay between filing the petition to open the probate estate and being appointed executor or administrator, which, because of budget cuts and reductions in court personnel, has recently taken up to eight weeks. Such a delay can erode the value of an estate. In volatile equities markets, we have seen estates lose hundreds of thousands of dollars because of the time it took an executor to be appointed.
Perspective of the Fiduciary
With this introduction in mind, we now review estate settlement from the fiduciary’s perspective: what does your agent, trustee and executor do on behalf of the person who has become incapacitated or died? (Sometimes we call fiduciaries “helpers.”)
Who Should You Choose?
Choosing your helpers and making sure they are willing and able to serve is one of the most important aspects of planning. Many carefully constructed plans have gone awry when the helpers were not capable, or were reluctant to devote the time and energy required to serve. Some people choose different helpers for different tasks; for example; a sibling might be chosen to serve as health care agent and a trusted advisor might serve as the financial agent. Others choose one helper for all tasks. The selection of helpers depends upon your particular situation and the array of available (and qualified) family members, friends, and professionals.
The Call to Action
Perhaps the most difficult helper role is that of agent, especially the health care agent. Picture this: You, the agent, get a call in the middle of the night from a nurse at a hospital near the home of your elderly mother. She has had a fall, is in the emergency room, and is stable but disoriented. They want to know what you want the medical team to do. You might tell them to keep her stable, and that you are on your way. By the time you reach the hospital, your mother has lost consciousness. You must now make some important decisions. What medical care should she be getting at this point? You wonder if she will regain consciousness. You wait for the doctor’s consultation. You listen to the nurse on duty. You swallow your emotions and try to focus. If she recovers, where should she live? What does her attorney say about this? Does she have an attorney? Does she have a health care power of attorney document in place? Where is it? What do my siblings think?
Hours turn into days. You and your siblings have been staying at a local motel. One is arguing that it is time to terminate mother’s life support. The other insists on continuing treatment. Are you ready to make the right decisions? The answer could depend on the discussions your mother had with you prior to this event. What would your mother want in these circumstances? You must decide.
This Situation Could Have Been Prevented
Mother, agent, and doctor could have had clarifying discussions about her preferences for care at the end of her life. And mother could have informed all the children of her wishes, to help reduce the likelihood of heated arguments during this emotionally charged situation.
SETTLING THE ESTATE
After someone dies, most estates are controlled by a will or a revocable trust, sometimes both. Picture this: You have been charged with settling your father’s estate. A few years ago, Dad told you that you were his executor. You recall your father may have had established a trust, as well. From what you remember, trusts were supposed to avoid probate, but you aren’t sure.
Where to begin? You might call the probate court and ask a few questions. But, if Dad had a trust, you shouldn’t need the court, right? Did Dad have a lawyer? Maybe you should start there. What is the lawyer’s name? Where is his office located? Is it in Dad’s hometown in New Jersey, or near that retirement community where Dad lived for the past four years in New Hampshire?
You finally connect with Dad’s former lawyer who sends you Dad’s original will and trust, along with a couple of suggestions on what to do next.
Reviewing the trust, you are heartened. This seems pretty simple. Where are Dad’s assets? You find some bank and investment statements. Some are in his name alone; others have “ttee” after his name. Another one appears to have your father’s name plus another name you don’t recognize, Carrie Careprovider. You could have sworn Dad had a life insurance policy, but you don’t remember the name of the insurance company.
Some of Dad’s assets were titled in his own name. Some were in his name as trustee. You learn his life insurance policy did not name a living beneficiary so it must be paid to his estate. As a consequence, there now must be probate settlement (as well as trust settlement). Because of questions about Dad’s capacity at the time he created the joint account with Carrie, there is a dispute about this asset as well.
This Situation Could Have Been Prevented
Dad could have established a relationship with a new attorney when he arrived in New Hampshire. He could have made a list of all of his assets and made sure each one was titled (owned) in a manner consistent with his wishes. He could have double-checked the beneficiary designation on his life insurance policy to make sure it was current. He could have introduced his executor and trustee to his attorney. These simple steps would have saved the family many hours of frustration, work, and unnecessary costs.
An Ounce of Prevention
Caldwell Law has handled hundreds of estate settlement matters during its years of practice. In some cases, families were torn apart by fighting among the survivors, because they didn’t know how the decedent wanted his/her matters to be handled. In other situations, medical teams provided treatments to prolong life when the patients, if they’d been able to say so, would rather have just let go. Sometimes family wealth was diminished by administrative and legal costs that could have been minimized or avoided. Many of these difficult cases could have been easier to settle if a little more time had been devoted to planning during lifetime.
Get the facts. Find out what you need to know. Contact Caldwell Law for a free consultation or browse our website to learn more. We offer many free workshops, free resources, and monthly newsletters.