Trust Administration - Death

One of the most important things we can do for your family is to spare you the needless frustration and stressful decisions at the time a loved one dies. Administration means dealing with people first, then property. Our goal is an amicable administration so that family members are not brought into conflict. It is a shame when relatives who once got along just fine have their relationships ruined because of mistakes made during administration. Ongoing communication is essential to avoiding hurt feelings over an administration.

Call 847-674-0200 for a free consultation.

5 Steps to Administration:

The process of estate administration in broad terms could be boiled down to only three: Gather the assets, pay the taxes and expenses, and distribution.

However, a more exact description of the process is that five stages are involved. They are:

1.

Marshall the assets. Find out what assets the decedent had an interest in at the time of his death. There are many ways in which the decedent’s interest could be indicated. For example, his name might have been in joint tenancy with one or more other joint tenants. He may have owned the asset only in his own name. He may have been the beneficiary of assets held in trust. He may have owned an asset that had a named beneficiary, such as a life insurance policy, IRA, or annuity. He may have owned a business that has restrictions on the transferability of shares at his death due to a buy-sell agreement.

Whatever the nature of the decedent’s interest, it must be identified in order to go to the next step.

Call 847-674-0200 for a free consultation.

2.

Make the legal determination of all of the factors that determine how the asset should pass at death. It is not as obvious as it may seem at first glance. Assets interact in many ways with respect to how they are titled, how beneficiaries are named, instructions in a will or a living trust.

For example, the will may direct that the assets go to one beneficiary, but if a different person is named as a joint tenant then the surviving joint tenant will prevail against the named beneficiary in the will.

Be careful not to rely on the account statements. The account statement may indicate title in one name but the underlying account agreement commonly known as a "signature card" could say something else. For example, the account agreement could indicate a POD or "Pay on Death" which is a type of beneficiary designation.

Sometimes the law intervenes to send an asset to a beneficiary that the decedent expressly did not want to have it. For example, if a wife leaves her 401(k) plan to her children Federal law will give it to her husband—even if her husband is by remarriage so he is not the father of her children.

3.

Explore whether there are advantages to legally altering the distributions. This is an area of the law called “post-mortem estate planning.” There can be enormous benefits with respect to income taxes, estate taxes and even protection from lawsuits.

This comes up more than you would suspect in estate administration. It can be a huge and costly missed opportunity. The estate plan the decedent had in place at death in not the final word. You can often do yourself a great deal of good by slowing down and considering this crucial step in administration.

4.

Pay the decedent’s expenses, debts, and taxes. Some of these may be discretionary and can be settled. Don’t just start writing checks.

5.

Distribute to the “beneficiaries.” The beneficiaries may be individuals or trusts. If the beneficiaries are minors and no trust has been established for them then accounts need to be established for their benefit by the children’s guardians. In Illinois these are called UTMA accounts (Uniform Transfer to Minors Act).

If the beneficiaries are trusts then tax identification numbers must be obtained. A trust will file an annual tax return called a 1041.

If the beneficiary is receiving government benefits then care must be taken to protect the beneficiary. An outright distribution may disqualify the beneficiary from receiving benefits and even result in confiscation of the inheritance.

First, Do No Harm:
A little knowledge is dangerous. Hastily made decisions can erode or even devastate an estate’s value. For example, it is common practice for a surviving spouse to rollover the IRA of a deceased spouse. But this decision could cost the survivor thousands, and take away needed flexibility.

Call 847-674-0200 for a free consultation.
1.

Guard the home of the decedent and the children named in the obituary during the funeral. The obituary is an advertisement to every burglar in town knows exactly where you will be. No one will be home on the date and at the time services are held. Have someone watch the homes of the decedent and anyone else named in the obituary during the funeral. Omitting the address of the decedent from the obituary is standard practice now but it is very easy to find the address on the internet based on the city the funeral home is located in and your name. The obituary also lists the names of the persons who the decedent is survived by. Their homes are also at risk if they live locally.
2.

Secure the home and the personal property in it. If you are the executor or Trustee you have the duty to protect the estate’s property. So don’t just lock the door. Change the locks. Tangible personal property has a way of growing legs and walking off. You never know who may have keys to the house. Perhaps copies were made over the years for handymen, friends, neighbors, or caretakers. If items are missing the list of usual suspects can be very long if the premises are not secured. To this end consider immediately removing items of special value and storing them in a safe place. Even if the value of the personal property is nominal in the market it may have enormous sentimental value. Limit access to the home, preferably to the executor or Trustee only. If something that the family always knew was there is missing when it comes time to distribute then anyone with access could have taken it—but the administrator is responsible. In addition going through the home and making an inventory of all tangible personal property in the presence of a witness is also advisable.
3.

Make sure liability policies on the decedent’s assets are in-force. Don’t assume the decedent has taken care of business. Often these matters are overlooked when dealing with the final months of life. Even if there is insurance you need to contact your agent and let him know that the owner has died. If the home is vacant the rates will be higher. If you elect to keep the old policy in place to save money you may find yourself without coverage if there is a fire, or worse, some kids break in and sustain injuries resulting in a lawsuit that can damage a lot more than the home.
4.

If the decedent owned and operated a small business make sure the customers keep coming. When I was a young lawyer I handled a case in which the decedent owned and operated a small exterminating business. He was the only employee. Everyday that went by and he didn’t show up on his route customers were calling Orkin or some other competitor. To preserve the value of the customer list make sure the business is being looked after even if you have to hire someone or pay extra to key employees until the business can be sold or taken over by a family member pursuant to the terms of the decedent’s will or trust. In the exterminator case, since there were no employees, a prompt sale to a competitor was arranged while the customer list was still fresh.
5.

Then, don't make a move. With the exceptions of numbers 1-4 above, the most important thing you need to know immediately is that nothing is to be done with any of the property until after you meet with the attorney who will be handling the estate administration. The medical adage of “First, do not harm” also applies to the law of estate administration. Even if you have the authority to do so because you are a joint tenant or trustee etc. it is very important that you leave the assets where they were found until a tax-efficient funding strategy is decided upon. Until then, don’t sell assets. Don’t roll over retirement plans. Don’t change title on assets. Don’t submit claim forms to insurance companies. Don’t take any distributions of estate property no matter how certain you are that the amount is well within the inheritance you will be entitled to. The failure to follow this rule can result in higher estate taxes, income taxes, or capital gains taxes. It may also make the inherited assets vulnerable to the beneficiaries’ creditors, lawsuits, divorces or bankruptcies. Haste can also arouse suspicions and create ill will among family members resulting in expensive litigation. Whether your particular estate has any of these issues depends on the facts and circumstances.

Red Flags of Impending Litigation:

Court battles can devastate an inheritance with litigation costs. Early awareness of the possibility of trouble can help you head it off. Time and again these circumstances lead to expensive conflicts. You can avoid estate battles with early recognition. If your estate has any of these factors then special attention needs to be paid before conflicts erupt.

1. Second marriages. If the decedent was remarried then the new spouse who is not the parent of the children and a stranger to the original family, enters the picture. In a well planned estate this presents no difficulties. But often times the estate plan fails to contemplate the intervening rights of the new spouse and expectations can be seriously disappointed. For example, even if the will leaves everything to the children a spouse can renounce the will and take a statutory share. The rules are complex. Be aware that there may be a problem and prepare for it.

2. A parent who owns assets jointly with one of the children. Joint tenancy is a popular inexpensive way to avoid probate but creates more problems that it solves. Since jointly owned assets pass to the surviving joint tenant automatically this often raises suspicions of undue influence. However, it is often done as a convenience so that the affairs of an elderly parent can be taken care of. Parents often trust the caretaker child to equally divide the assets after death but the extra responsibilities of the caretaker child often incline him or her to retain the assets and deny that any such assurances were given. Even if the child wants to divide the assets equally with the siblings, gift tax laws make it difficult to do so without creating problems in the estate of the caretaker child. Proper living trust planning solves these conflicts and removes suspicions when a parent is in declining health.

3. Children with different personal financial circumstances. The interest that children have in the estate can vary greatly depending on their own circumstances. Even if the terms of the plan are undisputed a child who is wealthy in their own right will not be in as much of a hurry for distribution as one who is a starving artist. Sensitivity to these varying circumstances of the children is essential for a smooth administration.

4. A family business that does not involve all of the children. If one of the children is involved in running the family business but the plan equally divides the business among all the children then this will inevitably create problems. The children who do not run the business will be more concerned with distribution of profits whereas the managing child will be more interested in reinvesting revenues to grow the business. These situations can be the source of great frustration and conflict if the family dynamics are not immediately addressed.

5. A parent who lacks mental capacity and one child has power of attorney. Powers of attorney are regarded as “blank checks.” They empower the power holder (called the “agent”) to do basically anything the principal could have done if he were present. They can be very useful but because of the wide open authority they are unfortunately often abused. Lawsuits are often filed in order to set aside transfers the agent made.

6. A meddling daughter- or son-in-law. In-laws have no inherent right to the deceased’s estate. They are not heirs. Unless they are named as administrators, or beneficiaries they have no rights with respect to the deceased’s estate. This does not mean they won’t try to influence the administration.

7. Excluding a child as beneficiary. If the deceased has become estranged from a child the will or trust may make provision for the children except for the disinherited child. This is perfectly legal if done correctly. There is no right to inherit (except for a surviving spouse in some instances). However, disinheriting a child may bring upon the estate a contest if the parent’s intentions were not made clear.

Moreover, when a parent disinherits a child, the grandchildren are often substituted as beneficiary. This means that that if the child contests the estate he or she is brought into conflict with his or her own children.