3 Considerations for Choosing the Executor of Your Estate

One of the key choices you make in your estate plan is who you will designate to serve as the Executor of your estate.  The Executor will be responsible for probating your will, dealing with the creditors of your estate and distributing your estate to your intended beneficiaries in accordance with the terms of your will.  It can be a stressful and thankless job that can take considerable time and energy to do well.  We suggest you consider three factors to help make a good choice for the person to serve as the executor of your estate.

1.        Does the Person have a High Emotional IQ?

This may seem like a weird place to start, but it is an important consideration.  Depending on the size and nature of your estate, the executor will be required to work with a variety of professionals, entities and individuals  – lawyers, accountants, financial advisors, court personnel, government agencies, creditors, beneficiaries, etc.  The person you choose needs to be self-aware and able to work well with others.  It is unlikely that you will be able to choose someone who does not have to ask for any professional help to answer questions or provide guidance so the person needs to be humble enough to be willing to ask for help and accept guidance.  It’s likely that the person you choose will need to be able to work with others who may be difficult to get along with, such as creditors of the estate or disgruntled or impatient beneficiaries.  So the person will need to have good interpersonal skills and be patient and understanding, yet firm.

2.         Does the Person have Availability to Serve?

Depending on the size and nature of the debts and assets of the estate, it could easily take 12 – 18 months to collect the assets, pay the liabilities and distribute the estate to your beneficiaries.  While the executor would not likely be spending 40 hours a week for that period of time, the person you choose to serve as executor needs to have the space in their schedule to attend to the administration of your estate in a timely and responsible way.  A lot of what needs to be done can be accomplished outside of normal business hours.  However, there will be things that need be done that will require the flexibility to be available during normal business hours – such as an initial court appearance, meetings with legal or tax professionals, and some communication with creditors or governmental entities.

Also, while it is not imperative that the executor live in the same vicinity as you, the proximity of the executor to the county in which the will is probated is a factor to consider and will affect this issue of “availability to serve.”

3.        Is the Person Conscientious?

It is not enough to be just to be smart or to be good with money.  Yes, those are important considerations and qualities that are assumed, when it comes to choosing an executor.  Obviously the executor will be dealing with your family and loved ones at a time when they will be in grief and transitioning to life without you.  You want to choose someone who is aware of that and sympathetic to those needs.  Obviously you will need to choose someone who is aware of the requirements to act  – whether its to notify creditors, attend court appointments, file tax returns or whatever -but equally important is to choose someone who acts in timely, responsible way, keeping accurate and complete records while keeping all of the appropriate parties adequately informed.

 

Two Strategies for Phase One Estate Planning

When it comes to doing an estate plan it is helpful to break the plan down into phases.  Phase one is the period of time while you are living and deals with issues related to the control and management of your property for your care and the care of those you feel responsible for if you are disabled.  Phase Two is the period of time following your death and deals with issues related to the administration and distribution of your estate.

There are two basic strategies for addressing issues that can come up if you are disabled in a way that prevents you from managing your own affairs.

One strategy is to designate an agent – someone to represent you – under a power of attorney.  Under this strategy, you continue to own assets in your own name, but the agent is authorized to transact business on your behalf.  In a previous post we discussed issues related to powers of attorney and why financial institutions might not honor them, as well as strategies for addressing these issues.

The other strategy is to create and fund a living trust in which a successor trustee is named to manage your assets for your benefit and the benefit of those you feel you have an obligation to support.

In my opinion, a fully funded living trust is a better strategy for dealing with issues that can come up if you are disabled for a couple of reasons.

First, the living trust can and should contain instructions to the successor trustee regarding issues such as your preference regarding in home care or nursing home care and issues related to your preferences for “paying your own way” if you are being taken care of by a family member in their home.  A power of attorney is not designed to include instructions like these.

Second, the living trust can provide instructions to the successor trustee regarding whether trust assets are to be used and how if there are people you feel an obligation to support, such as minor children, incapacitated adult children or your parents.  Again, a power of attorney is not designed to address issues like these.

Does the New Deal Throw You Over the Fiscal Cliff? 3 Pertinent Points to Find Out.

1.      The Estate Tax Exclusion Amount is $5,000,000.

The bad news is that the federal government will continue to levy a tax on all your assets at your death.  The good news is the legislation just passed provides that you have a credit that allows the first $5,000,000 in your estate (adjusted for inflation) to pass to your heirs free of estate taxes.[1]  This is good news indeed, particularly when you consider that the amount you could pass to your heirs free of estate taxes was scheduled to be reduced to $1,000,000 (adjusted for inflation). 

2.      Tax Rates are Going Up!

The bad news is income tax rates and capital gains tax rates and estate tax rates are all going up.  The worse news is, apparently the government thinks inherited assets are income.  The good news is the highest marginal estate tax rate (40%) is still tied to income tax rates, particularly when you consider that the highest marginal estate tax rate was scheduled to increase to 60%. 

3.      The Annual Gift Tax Exclusion.

For 2013, the IRS set the annual gift tax exclusion at $14,000.[2]  This means that an individual can give another individual up to $14,000 without any reporting/filing requirements. 

  

The reality is the new laws regarding taxation of estates and gifts apply to a very small percentage of estates.  While tax issues are important, they are not the primary reason why you should have an estate plan in place.  Regardless of the size of your estate you need a plan to protect you and your loved ones from unnecessary expense, hassle and delay if you are incapacitated and to provide for the orderly and efficient administration of your estate at your death. 

Call our office and begin putting your plan into place. 

 

 

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[1] An estate tax is a tax levied on all of your assets after you have passed away.  The Executor of your estate will file a tax return and write the check to the IRS before distributing the rest of your assets as your Will or Living Trust instructs. 

 

[2] A gift tax is a tax levied on the total amount of gifts you give to a particular person in a particular year.  You are obligated to report any gift giving (and possibly pay a tax) if the amount you give is in excess of the annual gift tax exclusion. 

 

The 5 Big Concerns Your Beneficiary Designation May Not Address

If you are like the average American, the bulk of your estate is likely in two or three different assets: your home, your IRA and possibly your life insurance.  Of these three assets, two are controlled by a beneficiary designation.  A small box on a form you filled out twenty years ago may not address your goals and objectives.

1.  Spouse and Remarriage.  Naming your spouse as your beneficiary seems the correct thing to do.  Give your husband all the assets and let him continue caring for the family and spending the money how you both would have done together.  But there is no contingency plan in beneficiary designations for a remarriage.
Imagine if Husband and Wife were married with two children.  Husband named Wife on his $500,000 life insurance policy.  Husband dies.  After a few years, Wife decides to marry Step-Dad.  Step-Dad has two children from a previous marriage as well.  If Wife dies before Step-Dad, she could leave all her estate (including the life insurance proceeds) to Step-Dad, who in turn would leave the money to his own children and not Husband and Wife’s two children.  You begin to see the problem.  Your children might miss out on the benefit of your assets and other children not your own might benefit.

2.  Minors.  Minors cannot own property; they don’t have the legal capacity.  The money will be held in trust for them and administered (possibly at a fee) by someone else.

3.  Equal Sums to Children.  If you name your children to equal shares of an asset, you are possibly setting up a terribly unfair system, particularly if some children are minors and others are not.
Imagine having a 22 year old son who just graduated from college which you paid for.  You also have an 18 year old daughter about to start school and maybe even a late-in-life surprise daughter that is just now 8.  Now each of these children is to receive one-third of the asset.  That means that the 8 year old will get as much assistance from you as the 22 year old who has already had the benefit of a college education.  Children in different phases of life need different levels of assistance that a beneficiary designation cannot provide.

4.  Predeceased Beneficiary.  You might be thinking this contingency is already provided for: You have named an alternative or successor beneficiary.  First of all, well done you.  Naming more than one is increasing the chances your wishes will be followed.  The downfall of “predeceased beneficiaries” is simply a matter of degree.
If you name your spouse first and then your children as secondary, you are like 99% of Americans.  If you wife predeceases you, your children will take in equal shares.  However, what happens if one of your seven children predeceases you?  Do you want your money to split between the other six children?  Do you want your grandchildren from the deceased child to split the one-seventh share?  Likely it doesn’t matter what you want, the beneficiary designation will have set its own rules which you are obligated to follow.

5.  Lump Sums.  Whatever you might wish to believe, people are not always smart or responsible when they come into money.  A life insurance company or investment company will write a check for the amount of your account to the first living beneficiary you have designated and be done.  But imagine your 18 year old son getting a $500,000 check.  He has legal capacity to accept the check.  And he might end up being quite responsible with the money and make good decisions, go to college and invest the money to live comfortably for the rest of his life.  Or he might go ahead and buy that Lamborghini because, well, who needs a reason?  He has half a million dollars he didn’t have before.

This is a summary of a few concerns regarding beneficiary designations.  Without proper estate planning done by an estate planning attorney, your biggest assets could end up in the wrong hands.  Contact the Ketchersid Law Firm to set an appointment to discuss how to circumvent these concerns and to care for yourself and your family properly.

3 Reasons Why The Bank* Won’t Honor My Power Of Attorney

(*or any financial institution holding your assets)

1. The Bank doesn’t know if the Principal on the account signed the Power of Attorney.  In all likelihood, you were not at the Bank when you signed your Power of Attorney.  Therefore, the Bank did not witness your signature and must take on faith that you actually signed the document they are being presented.

One possible solution: make sure that your Power of Attorney is notarized.  A notary stamp should ensure that the person signing the document has presented sufficient proof to the notary that they are the signer.

2. The Bank doesn’t know if the Power of Attorney is still valid.  Powers of Attorney are revocable.  Signing one does not forever after obligate you to abide by your decision.  You can later rip up the first one and appoint a different agent in a second one.  Or you can rip up the first one and never write a second.  A Bank would have to take on faith that the document presented has not been revoked.

One possible solution: record your Power of Attorney with the county.  (This is done in much the same way that real estate records are recorded).  This record can offer some proof that the Power of Attorney was done with intent and the record can reflect whether or not the Power has been revoked.

3. Your Power of Attorney is not on the Bank’s form.  No person or institution is obligated by law to honor your Power of Attorney, including the Bank.  The Bank might have legitimate concerns about the powers granted in your document and how to      interpret it.  Powers of Attorney are not always standard and the Bank might not want to try to interpret the specific powers you have granted your agent in your Power of Attorney.  Many financial institutions have their own forms they use to grant agents certain rights.  They use their own Power of Attorney because they know how to interpret it and they can verify the Principal has signed it.

The solution: have a viable Power of Attorney prepared by an attorney who knows what she is doing and make sure it is signed and notarized.  Then, go to EVERY financial institution that holds your assets (IRA/pensions; stocks/bonds; money market accounts, etc.).  Take your Power of Attorney with you and either have them put it on your file, or fill out the Power of Attorney form they have available to you.  Likely they will want both the document you bring in along with their own form filled out.

 

Your Bank is concerned with making sure your assets are protected, and that’s just what you want.  But when you are disabled or no longer capable of handling financial decisions, you want to be able to have your family or someone trusted access your accounts with minimal fuss.  The best solution is to act NOW, before something happens, so that you (and your loved ones) will be prepared and can take care of you if something does happen.

Contact our office and we will help you prepare a valid Power of Attorney.  A Power of Attorney is just one of several documents you need to have in place to make sure your property and your person are managed and provided for as you desire if you are incapacitated.  In addition to a Power of Attorney you should also have: Medical Powers of Attorney, Declarations of Guardian, HIPAA Releases and Living Wills (Directives to Physicians). Each of our estate plans also includes the full array of Disability Documents as well as end of life planning documents (wills and trusts).

Checking Your Current Will – 100 Second Check Part 5

Welcome back.  These five posts are for those of you who already have a plan in place.  We are checking to see whether your plan is still good, or if it was ever good.  Check out 100 Second Checks Parts One, Two, Three and Four if you haven’t yet.

1. Can You Find Your Documents?
2. Are The Right People Named?
3. Is The Will Signed (Properly)?
4. Does Your Plan Avoid Specific Gifts?

Remember, you need to answer YES to ALL five questions.  If you answer NO or you are not sure, look around KLF’s site to find more answers (willpartner.com or theketchersidlawfirm.com). Maybe it’s time to consider a new plan.

FIFTH 100 SECONDS: DOES YOUR PLAN INCLUDE DISABILITY DOCUMENTS?

No one wants to be disabled, but everyone should have a plan in place if the unexpected happens.  Disability documents authorize others to make financial and medical decisions for you when you are unable.  They also inform your doctors about your personal end of life wishes about life support.

Do-it-yourself “simple wills” and some online options completely ignore this VERY important facet of planning.  It should not be ignored.  Some plans don’t have state specific documents.  The State of Texas (and the Federal Government for HIPAA Releases) has set guidelines for these documents.  A “one size fits 50 states” form is not the perfect answer.

Even worse, though, is having these documents and not knowing what power it is you have signed over.  Read the documents and make sure you understand what your signature at the bottom has given authority for.

Check also to make sure the agents you have named in these documents are up to date.  If an agent has died or is no longer appropriate for the position, changes should be made to ensure your health and happiness in the event of disability.

The fifth 100 seconds is to check for disability documents that should be included to have a complete plan.  These documents include: Power of Attorney; Medical/Healthcare Power of Attorney; HIPAA release; Living Will or Directive to Physicians; and Declaration of Guardian.  Without these documents in place, heavy court intervention will be involved if you become disabled.  If disability documents are missing or have incorrect agents identified, you should have a new plan made, and SOON!

 

 

That’s it.  You’re finished.  If you answered NO to any of the five questions, we seriously encourage you to think about a new plan – for you and your family’s sake.  Spend the few minutes it takes to make sure your family is protected and if they’re not, take some time around the site or get started on your new plan under the “Start Planning” tab.

Checking Your Current Will – 100 Second Check Part 4

Welcome back.  These five posts are for those of you who already have a plan in place.  We are checking to see whether your plan is still good, or if it was ever good.  Check out 100 Second Checks Parts One, Two and Three if you haven’t yet.

Those still reading have graduated from levels one, two and three and have completed your first 300 seconds:

1. Can You Find Your Documents?
2. Are The Right People Named?
3. Is The Will Signed (Properly)?

Remember, you need to answer YES to ALL five questions.  If you answer NO or you are not sure, look around KLF’s site to find more answers (willpartner.com or theketchersidlawfirm.com). Maybe it’s time to consider a new plan.

FOURTH 100 SECONDS: DOES YOUR PLAN AVOID SPECIFIC GIFTS?

If you haven’t done so yet, READ your documents.  If your Will or Living Trust gives a specific gift (“my wedding ring to my daughter” or “Granddad’s rifle to my nephew”), do these gifts still exist?  If not, this could cause some trouble and you might need a new plan.

Also remember, specific gifts are used last to pay debts in the estate.  Specific gifts can be either the object specified in your plan or, if the object is unavailable, its monetary value.  And, a specific gift can be a specific amount of money (“$500 to my neighbor Jim”).

Imagine this possibility to understand the dangers of specific gifts:

When you signed you plan, you had $100,000.  You gave Jim $500 and left the rest to your son, thinking that your son would then get $99,500.  But with protracted healthcare costs at the end of life and nursing home bills, (and even spending down wealth to qualify for Medicaid) you have less money than you planned for.  Any debts left at your death, including funeral expenses, will be paid out of your son’s share first, and then Jim’s if your debts are not already covered.  This means Jim is going to get his $500 before your son can get any money.

The fourth 100 seconds is to check for specific gifts: they are used to pay debts LAST, so if your plan is abounding in them, perhaps a second look or a new plan is in order.

Legal Talk:

Texas Probate Code section 322B provides that estate debts and expenses abate in the following order:

1)      Property not disposed of by the will, but passing intestacy

2)      Personal property of the residuary estate

3)      Real property of the residuary estate

4)      General bequests of personal property

5)      General devises of real property

6)      Specific bequests of personal property

7)      Specific devises of real property.

A specific gift pays debts last in the estate and the residuary (“the rest to my son”) pays first.

Of course, if you estate is solvent when you pass and overflowing with assets to meet every debt accrued and to satisfy every specific gift made, there is no worry.  The fact of the matter is, though, that most people should take serious stock of their financial situation and see if they can afford to give so many specific gifts, especially considering costs to accrue with medical costs and nursing home/assisted living fees.  Specific gifts aren’t impossible, but should be examined and considered closely.