Admirable Administration
Question. If today were your last, how would you be remembered regarding
your estate planning? Would it be for leaving a mess for others to clean
up, or would it be for leaving a thoughtfully drafted, thoroughly
implemented and carefully maintained plan your appointed fiduciaries
could smoothly administer?
Finishing well regarding your estate
plan includes making things as easy as possible for your appointed
fiduciaries when the time comes for them to administer your estate.
The Three Phases
Upon your death, the post-mortem
(i.e., after death) responsibilities of your appointed fiduciaries
continue through three phases of estate administration. Whether your
estate plan is will-based or revocable living trust-based, your
fiduciaries must carry out certain responsibilities, including:
- Collect and manage your assets;
- Pay your debts, taxes and expenses; and
- Administer and distribute your assets for the benefit of your
named beneficiaries.
Your fiduciaries should seek appropriate
legal counsel throughout each of these three phases to ensure that all
of the "i’s" are dotted and the "t’s" are
crossed.
Collection & Management
Without delay, the first responsibility of
your fiduciaries is to protect and preserve your assets. This includes
taking an inventory of the assets, insuring and safeguarding them, as
well as determining their values as of the date of death. Make sure your
fiduciaries know where you keep your asset inventory, as well as the
account statements, certificates and titles for each asset.
If you have a funded Revocable Living
Trust along with up-to-date records of the trust assets (and their
respective values), then you will greatly ease this initial burden on
your fiduciaries.
Even if you do not have a Revocable Living
Trust-based estate plan, maintaining current financial records can save
your fiduciaries considerable time (and therefore money) in fulfilling
their Collection and Management responsibilities.
Debts, Taxes & Expenses
Once your assets have been collected and are
under management, the fiduciaries must arrange for the payment of your
just debts, your tax liabilities and any expenses associated with the
post-mortem administration of your estate. Again, time is of the
essence.
Consider this: estate tax returns must be filed
within nine months of death, and many post-mortem planning
opportunities, such as disclaimers and certain elections
(e.g., Qualified Terminal Interest Property, alternate valuation,
etc.), must be timely made or they are lost … and with them
potentially hundreds of thousands of dollars in estate tax savings.
The failure to comply with applicable legal
deadlines can expose your fiduciaries to some rather unpleasant personal
liabilities, to include tax liabilities of your estate, and lawsuits
from creditors and disgruntled heirs. Administering your estate can
quickly become a lose-lose proposition for your fiduciaries.
Administration & Distribution
Whether your estate plan ultimately provides
for the distribution of your assets to your beneficiaries in one lump
sum, in multiple distributions or through ongoing trust administration
(to protect your assets for and from your heirs), your
fiduciaries must ensure that accurate records are maintained and
receipts obtained from each beneficiary. In fact, the failure to account
for all income, expenses and disbursements throughout each of the three
phases of estate administration can result in civil and, potentially,
criminal sanctions.
Final Thoughts
Post-mortem responsibilities can be very
complex. Before you select and appoint fiduciaries for your estate plan,
or agree to serve as a fiduciary for someone else, assess the situation
carefully with qualified legal counsel.
Treasure Hunt
Question: What property do you own, where is it located and how much is
it worth? Next question: Is this information recorded somewhere, whether
in hard-copy or electronically? Next question: Who, if anyone, has
knowledge of and access to this information? If you cannot answer each
of these questions with confidence, then your final legacy for your
loved ones may resemble a treasure hunt.
A Common Scenario
It happens too often. Responsible people
meet with legal counsel and prepare comprehensive estate plans. Their
plans may even include cutting edge techniques implemented through
proven legal instruments. Then, an injury or illness strikes these
responsible people and they become incapacitated. Eventually, they die.
Sometime thereafter, the successor decision-makers meet with the legal
counsel who prepared the estate plans and receive their marching orders.
These successors assume their positions of responsibility only to make a
shocking discovery: There is little, if any, information available
regarding the property they now are legally required to identify, locate
and value.
The Problem
Instead of approaching estate planning as a
process to get (and keep) their legal affairs in order, too many people
mistakenly believe that everything is okay once they sign their legal
instruments.
Nothing could be further from the truth. In
fact, signing legal instruments without identifying, locating and
valuing the property is like buying an automobile without putting fuel
in its tank. It may look nice, but you are not going anywhere.
The Solution
You are in the best position to know what
you have, where it is located and what it is worth. After all, you
likely are identified as the owner on any deed, title certificate
or account regarding each asset you own. Additionally, you probably
receive notice each year from tax collecting authorities to remind you
of your property ownership (and the taxes you owe). If nothing else,
make a copy of your deeds, titles, account statements and tax notices,
then retain them with your legal instruments.
Do you have heirlooms and collectibles that are
difficult to value? If so, then a professional appraisal is essential to
establish their value for estate distribution and death tax planning.
The Follow-Through
It has been said that the will to succeed is
for naught without the discipline to plan. When it comes to avoiding an
unpleasant treasure hunt for your loved ones, maintaining accurate
records is essential to the success or failure of your estate plan. Do
not forget to communicate this information to your successor
decision-makers. Even the best-laid plans succeed or fail depending on
how well they are recorded and communicated.
Remember: The time you invest today to record
and communicate information about your property will make your estate
administration more efficient (and less expensive) later.
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