Essential Executor's Handbook: A Quick and Handy Resource for Dealing With Wills, Trusts, Benefits, and Probate

Essential Executor's Handbook: A Quick and Handy Resource for Dealing With Wills, Trusts, Benefits, and Probate

by David G. Hoffman

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Product Details

ISBN-13: 9781632650313
Publisher: Red Wheel/Weiser
Publication date: 03/21/2016
Series: Essential Handbook
Edition description: First Edition
Pages: 256
Sales rank: 250,866
Product dimensions: 5.20(w) x 8.20(h) x 0.70(d)

About the Author

David G. Hoffman is the senior partner at the law firm of Hoffman & Mathey, P.C. He has been a practicing attorney and author for more than 35 years and a lecturer for the University of Maryland, the George Washington University, and numerous private and public organizations. Articles and presentations with titles such as "Why Simple Wills Simply Won't" and "The No-Plan Estate Plan" have made him a popular personality in the Washington, D.C. community. He lives in Northern Virginia.

Read an Excerpt


Meet Your Estates

That's right. I said estates. The term, "settling an estate" is a misnomer. It is a colloquialism used to refer to the process of gathering up all of the decedent's assets, from every source, paying off creditors, and then passing out what's left to heirs and beneficiaries. However, how this is actually accomplished varies depending on which estate you are attempting to settle. There are four estates: the Probate Estate, the Contract Estate, the Knick-Knack Estate, and the Trust Estate.

Now, my goal is to show you how to let others settle these estates for you, but you need to understand the basics because, as executor, you bear the bulk of the legal liability. You need to keep an eye on these people as the work proceeds.

The Probate Estate

The Probate Estate consists of assets that the decedent owned in the decedent's name alone, without a joint owner, without a beneficiary, and without a living trust (more about living trusts later in this chapter). These assets are unique since, when you die, there is only one way to get at them and that is through the court proceeding known as probate.

To understand why probate is necessary, let's do a thought experiment. Let's say that you are the branch manager of a local bank. One day I walk in and tell you that both of my parents have died and I present you with their death certificates. I then proceed to tell you that I am their only child. Then I ask you to release all of their checking, savings, certificates of deposit (CDs), and the contents of their safe deposit box to me. What do you say?

A. "Well of course, Mr. Hoffman! We will do that right now. And would you like that in small bills?"

B. "Well of course, Mr. Hoffman! We will do that right away. However, I am afraid that I am going to have to see some ID."

C. "Yeah, I wish I could help you but, if I did, I would lose my job."

The correct answer is C. All I have really done is prove to you that two people have died. I have not proven that I am their child. I have not proven that I am their only child. I have not even mentioned their debts, liens, or tax obligations. If you gave me their money, the bank would be open to legal action by my siblings, my parents' creditors, the IRS, and if I were an imposter, by the real me. The last time banks were that trusting was just before the recession; and you see how that turned out.

What I should have done was make an appointment with the probate court. The court would give me a piece of paper that says I have been appointed executor. Then, and only then, would I come to you, the branch manager, and present you with my executor certificate. That is because the law grants immunity to anyone who deals with me as an executor. So, if I present you with an executor certificate, take the money, and skip to Switzerland, it's not your problem.

In short, probate exists mainly to protect financial institutions. But it also gives the executor authority to be the decedent's replacement. An executor can, among other things, sign tax returns, make claims, file laws suits, open new accounts, and decide who, when, and how to pay people. This power is so respected that I often get requests for a probate certificate even when the asset in question is not a probate asset. Annoying to be sure, but it makes the point.

The Contract Estate

The Contract Estate consists of assets that pass to someone as the result of a contract between a financial institution and one of their clients. The agreement is simply that the bank, broker, or insurance company will transfer the account or its proceeds to a preselected beneficiary at the time of the client's death.

For example, you open a checking account with your spouse. The account is classified by the bank as joint with right of survivorship. You die. The checking account automatically belongs to your spouse because your spouse survived you. That was the agreement you both made with the bank.

Or perhaps you take out a life insurance policy on yourself. In the life insurance contract, you select your spouse to be the beneficiary. You die. The insurance company pays the proceeds to your spouse. Why? Because that's what they agreed to do.

In neither example was the bank or insurance company acting out of the goodness of their collective hearts. They had a contractual obligation to turn over the asset to the surviving spouse. Failure to do so would lead to a lawsuit, investigation by the state, punitive action against the responsible employee, and so on and so on. The only thing that the spouse has to provide is a death certificate.

The Contract Estate does not require the assistance of the probate court. As I explained earlier, the probate court would only get involved if there was not an agreement to pay a joint owner or beneficiary. So what happens if the joint owner or beneficiary dies first? In such cases, the Contract Estate asset has to be reclassified as a Probate Estate asset since there is now no agreement as to who should get it. For this reason, financial institutions allow for contingent beneficiaries or multiple joint owners.

Other examples of Contract Estate assets include jointly owned real estate, jointly owned cars, annuities, 401(k)s, and individual retirement accounts (IRAs).

The Knick-Knack Estate

The Knick-Knack Estate is comprised of physical objects. Those objects can be valuable items such as jewelry, fine art, or coins. But, more often than not, it's just clutter, crap, and junk. But valuable or not, the law treats it all the same. The legal term is tangible personal property.

It's time for another thought experiment. Imagine that your last-surviving parent has just passed away. You go to their home and look around. If their home is like the home of most seniors, it is crammed with things. There are the usual items such as furniture, photographs, and light fixtures, but there are also books, paintings, pots, pans, china, silverware, reproduction art, and novelty birthday gifts from cash-challenged grandchildren. And then there is the pyramid of unopened mail that reaches from the dining room table halfway to the ceiling. And you haven't even gotten to the basement and attic yet. There you find stacks of boxes containing old clothes, old toys, old appliances, and even more unopened mail.

The bad news is that the Knick-Knack Estate is the most time-consuming and difficult estate to settle. The good news is that no court or financial institution is required. Technically, items of tangible personal property are classified as probate assets. However, the probate court only cares if your parents' wills specifically bequeathed their collection of Scottish curling stones to your impoverished brother living 2,000 miles away. (It's going to be your responsibility to get them to him and spring for the shipping.) The rest of the Knick-Knack Estate can be tackled by dividing it into three piles.

Likely, the smallest pile is the heirlooms — things that friends and family would like to have as a remembrance of the deceased. When my parents died, I suggested that my siblings work out what they wanted and simply take it with them after the funeral. It went amazingly well, with not a single punch thrown. My father tried this same approach when my grandmother died. He suggested the same thing but not just to family. He invited mourners at the funeral to come back to her house and select some remembrance of Nana. Dad forgot, however, that Nana lived through the depression and did not trust banks. Cash was stashed under every bed and in every drawer and closet. Guests were leaving with portraits of the presidents, Alexander Hamilton and Benjamin Franklin. Clearly, it is not a perfect solution for distributing heirlooms. I will suggest other approaches in a later chapter.

The second pile is comprised of items that can be auctioned. As you will see, you can hire an auctioneer to wander through the decedent's home and label those items experience has taught him are salable. As a rule, jewelry and coins are not auctioned but, again, we will come back to them.

By far and away, the biggest pile is just junk. Its destination is not your living room and not the auction block. It's going to the dump. Later, I will outline your options for getting rid of it; but, I have to warn you, it is a hard thing to watch your childhood bedroom set drive off to a landfill.

The Trust Estate

I am referring here to assets held by a living trust. A living trust is a document that states who is in charge of trust assets (i.e., the trustee), who is going to receive the benefit of those trust assets (i.e., the beneficiary), and who is creating the trust (i.e., the settler). The trust is then "funded" by, once again, securing the agreement of your financial institutions to hold your money in trust accounts.

What all of this means is that, when you die, your trustee has immediate access to those accounts for payment of debts and distributions to beneficiaries. Like the Contract Estate, the Trust Estate does not require probate. However, unlike the Contract Estate, the Trust Estate is capable of providing for multiple generations of contingent owners and beneficiaries.

For example, let's say that you are a widow with five grown children. All of those children have children of their own, and all of those grandchildren have children. Your living trust can be written in such a way that, should your children predecease you, their share is divided among their children — your grandchildren. If grandchildren predecease you, their share is divided among their children, your great-grandchildren; and so forth down the line of your descendants. If you have no descendants, the trust document looks to ancestors (e.g., parents, grandparents). But chances are good that they have already died. So it looks collaterally to brothers, sisters, nephews, nieces, and cousins first, second, and third removed. In short, with most trusts, we almost always know who the beneficiary is. As a result, the probate court gets the day off.

A living trust is also capable of retaining assets "in trust" for minors. There is nothing in the law that says that your children need to get their inheritance the moment you die. In fact, in most states, you simply cannot give money to persons under the age of 18 because they have no right to own it. Instead, most living trusts have a Minor's Clause that specifies the age that the child will ultimately get the money. Most of my clients pick 21, 25, or 30 years of age. One picked 60.

And that brings me to children with questionable money skills. It is possible to write a minor's clause that specifies no age of distribution. It simply says that the trustee will watch over your bitter disappointment for life, distributing only so much money as the trustee, from time to time, sees fit. In such arrangements, there is the added benefit that the child cannot lose the money to creditors or greedy spouses (because the child is also a sucker for a pretty face). And all of this flexibility is accomplished without probate.

Summing Up

It is possible that you will not have all four estates to settle. It is also possible that you will win a Noble Prize or win this week's Powerball. Sadly, these days, chances are good that you will probably be settling all four of the estates I have described; perhaps not in equal proportion but definitely something in each. Much like children, each has its own personality. And just like children, you will need the aid of different professionals to help them along their way. Some professionals assist in the settlement of all of the estates and some are unique to, say, only the Knick-Knack Estate. Your only job is to identify the estate to which an asset belongs, hire the correct professional to deal with it, and then go make yourself a drink.

Things to Do

1. Locate the original will.

2. Locate the trust (if there is one).

3. Order the death certificates (at least 10).

4. Locate the most recent statements for all bank and investment accounts. Note on each how they are held (joint, trust, or just decedent's name).

5. Photograph each room of the decedent's home(s) or other property (to identify items that may be removed in the future without your permission).

6. Locate all real estate deeds.

7. Locate all titles to vehicles.

8. Locate all life insurance policies.


Meet Your Team

In Chapter 1, you learned about the four kinds of estates: the Probate Estate, the Contract Estate, the Knick-Knack Estate, and the Trust Estate. Now it is time to meet your team. They are (in no particular order): lawyer, accountant, appraiser, realtor, auctioneer, insurance agent, banker, broker, assorted bureaucrats, and the people who haul away a lifetime's worth of junk. Some of your team members will help you with all four estates, and some will take charge of only one. In later chapters, you will learn the job and responsibilities of each team member in detail. The purpose of this chapter, however, is to give you an overview — a chance to meet your team.

The Lawyer

The law is everywhere and effects almost every aspect of our lives. This is especially true in the case of settling estates. While lawyers may not be realtors, they know property law. While lawyers may not be accountants, they know tax law. And while lawyers may not be bankers, they know banking law — in particular, the Uniform Commercial Code. And so it goes with each member of the team. As such, one of the lawyer's principal responsibilities is to coordinate the efforts of the team as a whole and prevent one member from doing the job of another. For example, if the lawyer is going to prepare the Federal Estate Tax return (as many do), it is important that the accountant be aware of this so that it is not prepared twice.

In addition to coordinating the team, it is the lawyer who guides you through a court proceeding known as probate: gaining access to assets that were held in the decedent's name alone. And finally, the lawyer acts as negotiator, helping you deflect complaints from and among your decedent's beneficiaries as well as settle the claims of your decedent's creditors (usually at a substantial discount).

The Accountant

The accountant's principal job is as tax preparer. The accountant will be responsible for preparing the decedent's final tax return as well as preparing the annual tax returns of both the Probate and Trust estates. The accountant will also act as counsel. Questions such as whether it is a good idea to distribute income to beneficiaries or what is the tax effect of selling property are directed to your accountant.

The accountant also serves as liaison with the Internal Revenue Service. Should you forget to file a tax return or should you fail to pay the tax, the IRS will impose substantial penalties on the Probate and Trust estates. It is the accountant who will negotiate a reduction in these penalties. Many times, an experienced accountant can eliminate the penalties altogether.

The Appraiser

There are two kinds of appraisers: one for real estate and one for personal property (e.g., jewelry). The real estate appraiser is necessary for two reasons. First, you will need to know what your real estate is worth so that you will not waste time asking too much for it. On the flip side, you don't want to ask too little or you will become the target of vengeful beneficiaries. Furthermore, by providing a high value that the IRS will accept, the appraiser makes it possible to reduce capital gain tax when you sell the property.

The appraiser of personal property ensures that the knickknacks are distributed fairly. For example, I know of a case where the executor divided two diamond rings between two sisters. The rings appeared to contain identical stones but, in reality, one stone was diamond while the other was cubic zirconium. The executor, in that case, opened himself to a lawsuit by the cubic zirconium sister.

The Realtor

For most people, real estate is the most valuable asset they will ever own. And so it follows that the decedent's real estate is the most valuable asset in your estates. Therefore, an excellent realtor is an absolute necessity. The realtor will take responsibility for putting the home on the market (i.e., listing), promoting the sale of the home (i.e., marketing), accepting or declining offers for you at your direction (i.e., contracting), and completing the sale of the home (i.e., closing).

Realtors are also expert in the daunting number of regulations that govern the sale of real estate these days. Your realtor will guide you through the maze of regulations, as it is critical that you comply with all of them. Failure to comply will result in some pretty stiff penalties. Not to put too fine a point on it, but executors who attempt to sell without a realtor may as well just stand in front of an oncoming train.


Excerpted from "The Essential Executor's Handbook"
by .
Copyright © 2016 David G. Hoffman.
Excerpted by permission of Red Wheel/Weiser, LLC.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

Table of Contents

1. Meet Your Estates,
2. Meet Your Team,
3. You: The Fiduciary,
4. The Lawyer: Courts, Contracts, and Crisis,
5. The Accountant: Taxes Aren't Just for the Living,
6. The Appraiser and Valuation Methods,
7. The Auctioneer and the Trash Man,
8. Know Your Bureaucrat,
9. The Banker: Keeper of the Cash,
10. The Realtor: The Miracle Worker,
11. The Broker: Meeting Your Fiduciary Obligations,
12. The Insurance Agent and the Life Insurance Lotto,
13. What's in It for You,
14. Common Conundrums,
About the Author,

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