Retirement Income Blog

When an individual dies, assets of the decedent may be transferred based on how their titled or a named beneficiary.  For example, assets held as joint tenants with right of  survivorship pass directly to the other joint owner.  Similarly, IRA accounts pass directly to the named beneficiaries as do payable on death accounts, transfer on death property, and most life insurance and retirement benefits.  For other assets that do not have a named beneficiary, an estate/trust Administration process is necessary.  In the case of a person who dies with a will, that process is called probate and requires proceedings in probate court.  In the case of a person dying with assets in a trust, then probate is avoided and the estate/trust administration duties fall to the successor trustee named in the trust, typically a family member.

It is the probate court’s responsibility, as it is the successor trustee’s in the case of a trust, to ensure the assets are collected, maintained, and distributed among the decedent’s heirs, beneficiaries, and/or creditors according to the direction of the decedent as expressed through a will or the trust.  This process is known as estate/trust administration of a decedent’s estate.
 
After the death of an individual, an estate may be opened by any interested person filing an application to administer the estate. This is usually done by the executor, a family member named in the will.  In the case of a trust, the estate/trust administration is handled privately, not involving the court and can often be accomplished in a matter of weeks, not months.  That is one advantage of estate/trust administration with a trust–speed.  The other advantage of estate/trust administration is privacy.  While matters involving a will involve the court as explained above, these matters become public.  Estate/trust administration handled when the decedent has a trust is handled privately by a family member or someone close to the family and there is no public record.
 
In both cases, will and trust, the estate/trust administration process involves the following steps:

Application for authority to administer the estate and admit the will to probate if one exists;
Appointment by the court of a  fiduciary (in the case of a will);
Gathering assets and obtaining appraisals as required;
Filing the inventory in a timely manner;
Payment of creditors;
Filing of estate and income tax returns and payment of taxes, if any;
Distribution of remaining assets to beneficiaries;
Closing the estate by filing a final account or certificate of termination in a timely manner.

While it’s usually the case that estates are closed once all assets are distributed, in the case of a trust, the estate/trust administration process can continue for years.  For example, the decedent may have specified in his trust to have $20,000 distributed annually to his 20-year-old grandson.  The would require the trustee to administer the trust over the next 60 years or so. While this is not a difficult job by the trustee, the desires of decedents who use trusts can be more involved and require estate/trust admininstartion over decades.
 
Note that the eatate/trust administration issues have no impact on estate taxes due.  Whether the decedent has a trust or will, the same estate tax impact can be accomplished in the design of the documents. Avoiding probate does not mean avoiding estate taxes. Assets left in trust are subject to estate and inhertiance tax just as assets left through a will.  Avoiding estate taxes requires that tax and estate planning be done well before death, coordinated by an experienced retirement advisor.
 
If a decedent has no will or trust, the estate/trust administration process is similar as if a will had existed. However, the State may decide on the distribution of certain assets because there is no documentation of desires from the deceased.

Bookmark It

Perhaps you have made your will and now you think you know where your money will go. Think again! Is there a new child, a new spouse, or was there a death in your family? If so, then take these changes into account in your will. Or what if after you pass, things as they are now change–will those heirs you selected get what you want them to have?  Will preparation requires thinking about not only today’s relationships but also potential future relationships.

In addition to a change in the relationships amongst heirs that impact your will preparation, there is also State law. Your will is not the law. The probate court may override your will for various reasons –one of which is non-conformance with state law. State laws often require that a surviving spouse be entitled to a third to a half of the estate. If you have taken her or him into account, then at her or his death, a substantial amount of your estate will shift to other beneficiaries. You may wish to re-evaluate who could get your assets and be more definitive in your will preparation.

Suppose your spouse has died and you prepare a will. You leave your entire estate equally to your two children, each of whom has two children. Your beneficiaries are therefore your children and grandchildren, which the law regards as your “issue” (direct descendants). If you live long enough, there is a chance that you may outlive one of your children.

If one of your two children died, your estate distribution would depend on how you referenced their inheritance–as “per stirpes” or “per capita.”  Huh?  This is where state law can determine who gets what without you even realizing the following could happen.  The following is what make specificity in will preparation so important.

 If you leave an inheritance to your surviving issue per stirpes, then your children’s children will divide the share their parent would have received had he or she lived. On the other hand, if you leave the inheritance per capita, then each surviving issue gets an equal share.  If you don’t  specify this in your will preparation, your State law decides.

To illustrate the above example, we assume that both children were due equal shares of your estate. That would send half of your estate to the remaining child, while the other half would be equally divided by the children of the other child. That’s the case for per stirpes. See figure below.

Under a distribution per capita, when one child dies, all the remaining issue equally divides the estate. The remaining issue is your surviving child and his two children, along with the two surviving children of your deceased child. That is five people and each of them receives one-fifth of the estate. That is quite a significant reduction for your sole surviving child.   Now the preparation of a simple will does not seem so simple, does it?

Lastly, if you willed an inheritance to a friend, but he predeceased you, then his wife will likely receive your bequest (again, this depends on State law which operates when your will preparation and instructions are inadequate). If your intention was that the bequest was only for the friend, then you must state in your will that he must survive you to receive it.

If there is a major change in your family structure–or in your financial circumstances too–you should revise your will immediately.

Bookmark It

Will planning, trust planning and estate planning is not just for older people.  It’s for anyone that wants to avoid heartache for those they love. It’s simply a asset of instructions to distribute property to those who you want to have your property. 

If you have a will your property will go to those you want to have it and there is no other way for you to have this assurance because the State will determine who gets your assets if you don’t have a will.  Additionally, by planning your will, friction and arguments will be lessened among beneficiaries.  Without your instructions, how will they know who gets what?  Moreover, the potential for large legal fees and court costs can be minimized because you avoid litigation among family members.  And of course, with proper will planning, The estate will be settled more promptly.  A good retirement planning calculator will help you estimate the size of your estate to be planned.

The major aspects of the planning are
1. To decide who you want to name as beneficiaries (both primary and contingent)
2. What you want each beneficiary to receive
3. You can name an executor/executrix to manage the distribution of your assets
4. If you have children, can name a guardian to care
5. Make an charitable bequests

Some people avoid will estate planning because of superstition—that if they plan the distribution of their assets they will die.  You will be comforted to know that there is no research or statistics to support this.  In fact, there’s a statistics floating around that 75% of attorneys die without a will.  That would support the case that people without a will are more likely to die!  So plan and prepare your will now!

Don’t delay estate planning because there are things you cannot decide.  For example, if you are torn about which beneficiaries to indicate or what to leave them, just have a will made anyway with your “best guess.”  You can always change it later.  And since you can use will planning and preparation software, you can change your mind as often as you desire without cost.  Or you may be undecided about charitable beneficiaries.  Again, you can change, add or delete charities at any time to your will.

Below find the information you need.  If you don’t want to prepare your own will, it’s a relatively inexpensive attorney’s fee to have it done. 

• Names and address of each beneficiary.  If a relative, state relationship.
• If any of your beneficiaries were to predecease you, name the contingent beneficiary (next in line)
• List specific bequests to be made to each of those persons listed above. Describe the gift, the amount of money or percentage of the estate to each recipient.  It’s best to use percentages.
• Names and addresses of charities for charitable requests and amount (again, best if a percent of your estate)
• If minor children are living at the time of making a will, you should name a guardian for their care. 
• Appoint your executrix/executor. Husband and wife often name each other. Specify if they will serve without being bonded in administering your estate. Again an alternate should be named.

Bookmark It