Avoiding Problems in Estate Settlement

Many have had to deal with the issues involved in settling the estate of a decedent. Often, individual family members are called on to oversee the details, such as working with creditors and utility companies to arrange for the payment of final bills and expenses. Once such payments are made, the residual – or money left over – can then be distributed to individuals or organizations named in the Will or Trust of the decedent.

The estate settlement process is often long and tedious. The tasks involved in the process can include several more immediate items: working with the funeral home and church to plan a memorial service, notifying utility companies to stop such services as cable television or internet service and paying final medical and funeral bills. And such steps are only the beginning. As the process continues, there is often a home holding personal property, pets and other assorted items accumulated over the years. All such items will need to be dealt with prior to the sale of a house or the termination of an apartment lease.

The inherent complexity of the estate settlement process makes it a daunting task. The duty of ensuring all the tasks needed to settle the estate falls on the Personal Representative under a Will and/or the successor trustee of a Trust. Simply put, whoever is named in these roles will have a lot to do.

Once you die, someone will need to wrap up the details of your finances. The complexity of this task can be overwhelming, but there are some steps that you can take now to ensure those who take on the task can do so efficiently, and as a result make sure bequests to family, friends or charities are done as quickly as possible. Included below are some tips that can help make the estate settlement process go ahead more smoothly.

Having a well-crafted estate plan

Many individuals believe they don’t have enough assets to necessitate the creation of an estate plan. As a result, many will say, “Why pay a lawyer to draft a will? If I die, everything will go to my wife and kids anyway” or “I don’t have enough money for a trust.”

In such cases, the results could turn out fine, if there is a surviving spouse to receive the assets and care for any minor children. But what happens if there is no surviving spouse, or there exists a ‘significant other’ was never legally a spouse? If there is no surviving parent, custody is decided by the court.

Creation of a basic Will is a good first step. A Will holds your directions for the distribution of your property and can also state your wishes for the care of minor dependents. If a Will was never created, the person who died, known as the decedent, is considered to have died intestate. In such situations, who will get the assets of the decedent will be decided by the state law of the state where the decedent lived at the time of death.

Based on your financial situation, your attorney may also recommend the creation of a revocable living trust. Trusts have certain advantages, notably the avoidance of probate once you die.

Choosing the right people and/or firms AND making sure of their willingness to assume the role

When someone creates a Will or Trust, there is a need to consider who will take care of matters once you are gone. Who will handle paying your bills and distributing your remaining assets? In a Will, such tasks fall on the Personal Representative (PR) (sometimes called Executor); in a Trust, it will be the duty of the Successor Trustee. Either role can be assumed by an individual or by a corporate fiduciary – often the trust area of a bank. In either case, that individual or entity is responsible for making sure all the financial matters of the decedent are handled. Again, this includes taking care of all debts and financial issues. This typically includes taking care of matters like notifying creditors, contacting utility companies to stop services like internet service or phone service, disposing of personal property and the sale of real estate and vehicles. Keeping in mind a quote from Benjamin Franklin – “…in this world, nothing is certain except death and taxes,”, the PR or Trustee is also responsible for making sure a tax return is filed on behalf of the beneficiary for the last year of their life.

So, who will be willing to take care of all these tasks? Also note I said, “willing to.” Just because someone is named in a contingent role in a Will or Trust, there is no requirement for that person or entity to serve when called on to do so. That’s right – they can say “No” or in legal parlance, they can decline the appointment. Also, a nomination to serve does not entail any sort of, “Tag, you’re it!” quality. The person or entity can decline to serve without giving any reason and is not responsible for making sure the role is filled by someone else.

As a result, you should first ask a prospective PR or successor trustee if they are willing and able to fill the role if asked. Don’t simply assume a family member or friend would be willing to serve in role that entails a fair amount of work and potential liability of not performed correctly. This also applies to any corporate fiduciaries. Make sure they, 1) perform estate settlement services, and, if they do, 2) determine what is the minimum size estate they are willing to settle.

Finally, find more than one potential individual or entity in mind. As discussed earlier, people or companies named to serve as successor trustee or PR can decline to serve for any reason. Should your first choice decline the nomination goes the next named, or if no others are named the role is vacant and may need court action to appoint a successor. Bottom line: have fall back choices available should your first – or even second - choice decline to act.

Get Organized

A common challenge faced by those call on to settle an estate is gathering information. Once an individual or a corporate fiduciary accepts the role of successor trustee or PR, they are often going into the situation without knowing the details of the decedent’s finances. The first thing they need to figure out is where everything is. Specifically, there is a need to know where the assets of the estate are located, including bank and investment accounts, retirement accounts, personal property and real estate.

Organizing your finances can involve many steps. However, there are two steps that can greatly assist those tasked with settling your estate.

  1. Consider consolidating your assets. Consolidating your finances can mean several things. For example, do you need to have several different checking accounts at several different banks, or could you possibly have one checking account at one bank? Or do you have a number of rollover IRAs from past jobs held at several different financial institutions? If the contributions to these IRA’s were all pre-tax dollars, consider combining these into a single IRA.
  2. Make sure assets are titled correctly. If you and your attorney did decide to create a revocable trust, make sure you retitle your non-retirement assets in the name of the trust. What does this mean? Contact your financial institutions such as banks and brokerage firms and tell them you want your accounts retitled in the name of your trust. Typically, this involves filling out some simple paperwork and providing copies of some of the pages of the trust document. Also work with your attorney to retitle your home and other real estate in the name of the trust.
  3. Make sure someone knows where you keep your documents. This one is self-explanatory. Entrust a friend or family member with the knowledge of where you keep your important papers, whether it be a safe deposit box at a bank, a file cabinet at home, a firebox – wherever you choose. But let someone know where such documents are so that those who will settle your affairs can do so as quickly and efficiently as possible.
  4. Leave a list. This is a simple, but often overlooked step. Create a list of where your assets are. Create a simple list of what financial accounts and their respective firms. The list can be as detailed as you wish, but at a minimum should have basic information such as the firm they are held at and type of account (checking, savings, investment/brokerage, etc.). As needed, update the list periodically. Finally, place the list with your other important papers.

Keep it simple

Many times, there is a desire to take care of as many friends, family members and organizations by making provisions for multiple parties. And it’s likely that all those receiving funds from an estate will be grateful, regardless of the size of the bequest. But in some cases, there is a concern that some individuals might not be able to responsibly handle the receipt of a bequest, either due to age, disability, or just generally being “bad with money.” Such concerns are certainly legitimate, and exploring ways to ensure bequests to such individuals are handled in a responsible manner is certainly appropriate. Making sure a beneficiary does not squander an inheritance, of if a beneficiary is disabled making sure inherited assets will not disqualify them from benefits are important considerations. In some cases, this might mean the assets can be held in trust for such beneficiaries, with trust terms consistent with both the specific situation and your wishes.

However, there also needs to be consideration given to the feasibility of any solution. For example, let’s say you estimate the total size of your net estate is about $1 million. You wish to have your assets divided among 6 nieces and nephews. However, you want your nieces and nephews to have access to funds only for specific things like tuition or medical expenses until they reach age 40. To ensure your wishes with regards to their inheritance are followed, you decide you wish to have 6 separate trusts created at your death, one for each niece and nephew. Of the $1 million, approximately half is held in a traditional IRA. As a result, you make your trust the beneficiary of the IRA at your death. Since you don’t want to create potential family discord by naming a family member as trustee, you name a corporate fiduciary to serve as trustee of the trusts. This would result in six, $167,000 trusts, with half of the value of each being a trust-owned IRA. There are several problems with this approach. First, it is unlikely many corporate fiduciaries would agree to accept appointment as trustee of trusts of this relatively small size. Second, due to the implementation of the Secure Act, IRAs held in trust must still be paid out within 10 years. Further, distributions to the beneficiaries of the IRA assets will be taxed as income at their tax rates.

These relatively basic pieces of advice can help ensure the settlement of your estate goes smoothly. One final bit of advice: work with an attorney who specializes in estate planning to create your estate documents. There are many online resources that people often use in an effort to develop an estate plan for little or no cost. It’s true an attorney will charge for their services. However, better to have a plan done right than create a plan that is vague and does not properly address many of your wishes. Also, keep in mind you can change – or amend - your plan as many times as you wish.

If you have any questions about estate settlement plans or simply would like more information, please contact our Prairie Trust team at (262) 522-7400 or email PrairieTrust@waukeshabank.com. We're always here to help.