Probate and trust administration can became a burden for the personal representative (executor) or the successor trustee. This newsletter will discuss 17 ways you can make the job of your personal representative or successor trustee easier, which ultimately means the probate of your estate or your trust administration will cost less. For simplification, I will refer to the person administering the estate or trust as the “PR.” This information applies to the probate of estates and to the administration of revocable living trusts.
1. You should own bank or brokerage accounts that do not automatically transfer to beneficiaries at the time of death. If all of your liquid accounts are titled as JTWROS, POD or TOD, those funds will not be available to the PR to pay estate administration bills.
2. You should keep sufficient liquid assets in a bank or brokerage account to allow your PR to maintain the assets of your estate (such as real property subject to a mortgage). Just as financial advisors suggest that you keep 3 – 6 months of emergency cash on hand, I recommend that you maintain sufficient funds in a bank or brokerage account to pay mortgages on real property, property taxes and utilities (gas, power, sewer and water) for a period of at least 6 months if the real property of your estate is to be sold. If your estate is a taxable estate, meaning that your estate is valued at over $2,054,000.00 in 2015, then there should be sufficient liquid assets to maintain your real property for a period of at least 27 months. In the current real estate market, real property is not selling quickly; I have dealt with estates where the real property has been on the market for more than six months.
3. If you do not have enough liquid assets to cover expenses for a 6-month period of time (or a 27-month period of time if your estate is taxable), then you may want to consider purchasing life insurance to pay estate administration expenses. If your estate is not taxable, you may want to name your estate directly as the beneficiary of your life insurance proceeds. If your estate is taxable, then you may want to place your life insurance proceeds into an irrevocable life insurance trust (“ILIT”) so that the life insurance proceeds are not subject to estate taxes.
4. You should consider naming a PR who lives nearby or someone who would be willing to travel to handle your affairs. Of course you can name anyone as your PR, but when real property needs to be cleaned out, cleaned up and sold, it is helpful to name a PR who lives near the property so that the PR does not have to travel far or frequently to handle the probate administration. Although many tasks can be completed via email or fax, and third parties can be hired to sell tangible personal property and stage and sell a residence, it can be problematic for your PR if he or she feels obligated to sort through your personal property to decide what should be kept, sold or thrown away. This can be a significant job.
5. You should consider sorting through all of your belongings and simplifying your life so that your PR does not need to do that job when you die. Minimize the “stuff” in boxes and storage that you do not use and have not used for years. If an item has special meaning, you should certainly keep it, but many stored possessions no longer have a meaning or purpose except your unwillingness to throw it out.
6. You should create a list disposing of your tangible personal property so that your PR knows who should receive what items of your tangible personal property and therefore does not have to deal with beneficiaries who claim you promised to give them an item. In addition, consider what you want done with the items of tangible personal property that no one wants. Do you want your PR to have a garage sale or auction? Do you want your tangible personal property given to charity? After items have been disposed of by list and your chosen beneficiaries have selected what they want, and the value of the remaining tangible property is less than $1,000.00, I believe that your PR should be allowed to decide how to dispose of the remainder; it may not be worth the work and cost to auction the items off or sell them at a garage sale.
7. You should advise your PR where your original will is located – a copy is not sufficient. A copy of a will must be probated as a lost will, and it costs more to probate a lost will because a court hearing is required. I recommend that you file your original will in the Superior Court Will Repository so that your will can be easily located upon your death. If your original will is filed in the will repository, it is sealed until you die. Although it costs $20.00 to file a will with the court repository, this is cheap insurance to make sure that your will can be located.
8. You should consolidate your bank and brokerage accounts. The fewer accounts you maintain means fewer financial institutions to contact for date-of-death values for the inventory and estate tax return. It also means fewer financial institutions to deal with in transferring accounts to the ultimate beneficiaries, especially if stock is retained in an account for the beneficiaries. You may presently maintain accounts at several different banks to make sure you have FDIC insurance on all of your money; however, many brokerage firms can buy CDs at several different banks so that all of your money in CDs has FDIC insurance, yet all of the information will be available on one account statement.
9. You should hold stock in a brokerage account rather than in certificate format. It is easier and cheaper to transfer stock in a brokerage account. To transfer stock in certificate format, your PR will have to contact the transfer agent to have the stock transferred and pay the transfer fee for each certificate (usually $75.00 – $400.00 per certificate). In comparison, stock in a brokerage account in street name is transferred without contacting the transfer agent – it can be sold or transferred in-kind to the beneficiaries.
10. You should hold savings bonds in your brokerage account so that your PR does not need to fill out paperwork on each savings bond to collect the proceeds upon death.
11. You should inform your PR where he or she can locate your bank and brokerage information. This allows your PR to obtain date-of-death information immediately, prepare an inventory of assets and then collect estate assets. Otherwise, your PR must wait to receive statements in the mail containing bank and brokerage account information or wait until the end of the year for 1099 forms. In this day and age of online banking, your PR should know where to locate your passwords for your online bank and brokerage accounts
12. You should inform your PR where to locate creditor information. If your PR can locate creditor information quickly, then your PR can promptly mail a notice to creditors to actual creditors and the creditor claim period can end four months after the first publishing of the notice to creditors.
13. You should arrange for your funeral and the disposition of your remains before you die. A PR once told me how thankful she was that her mother had arranged for the disposition of her remains and funeral before her death. The PR appreciated that she did not have to guess at what should be done for her mother’s funeral. A number of people do not want to think about or even discuss what they want to happen with their bodies at the time of death, but this leaves the PR in a quandary about what should be done for the deceased person. You may also want to consider writing your obituary or give directions that you do not want an obituary published.
14. You should talk with your PR about whether you want to be buried or cremated because your PR will probably not look at the directions in your will until after you have been buried or cremated. If you a want to be cremated, you should prepay your cremation so that your body can be cremated without your spouse or all of your children agreeing to cremate you.
15. You should make arrangements for who will care for your pets after you die. Your PR may not know who should care for your pets or how to care for your pets, and therefore your pets may end up in an animal shelter or be euthanized.
16. You should let your PR know where to locate the addresses for your heirs at law and beneficiaries under your will. If your PR cannot locate the addresses for your heirs at law and beneficiaries under your will, the PR may have to hire a company to locate the heirs at law or beneficiaries and this may increase the cost of the probate or trust administration.
17. You should name charities as a beneficiary on your retirement plans if you are charitably inclined instead of in your will.
This allows the charity to collect the proceeds of the retirement account without being able to request a complete accounting of all of the assets in your estate. In addition, the charity does not pay any income taxes on the monies that come out of a retirement account in comparison to an estate or individual who would pay income taxes as money is withdrawn from a 401(k), 403(b) or traditional individual retirement account.
For example if David has a retirement account worth $100,000.00 he could name the Whatcom Community Foundation as the beneficiary of that account. The Whatcom Community Foundation would directly work with the brokerage firm to collect that money and the Personal Representative of David’s estate would not have to account to the Whatcom Community Foundation for all of the assets in David’s estate. In addition, if the retirement account was a traditional IRA or 401(k) or 403(b) where income taxes had not been paid on the money in the account previously, Whatcom Community Foundation as a charity also would not pay any income tax on the withdrawal of the money but an individual who is named as the beneficiary would need to pay the income tax on the funds as they are withdrawn from the retirement account.
Although it can be an honor to be asked to serve as a PR, it can also be a nightmare if your PR has trouble locating assets, creditors and beneficiaries or heirs at law; has to communicate with quarreling beneficiaries; or has insufficient cash flow to pay the ongoing bills related to the assets of your estate during the administration of the estate.
If your assets have changed in value since you last updated your will, I suggest that you review your financial picture to make sure that your PR will have sufficient funds to handle the administration of your estate for at least a 6-month period of time.