Read more about the article What You Need to Know About Estate Taxes – Annapolis & Towson Estate Planning

What You Need to Know About Estate Taxes – Annapolis & Towson Estate Planning

Most Americans don’t have to worry about federal estate and gift taxes. However, if you’re even moderately wealthy and want to transfer wealth to your children and grandchildren, you’ll want to know how to protect your ability to pass wealth to the next generation. A recent article from Woman’s World, “If You’re Rich, Read This—Your Estate Taxes Could Be at Stake (And Your Kids at Risk of Losing Their Inheritance” provides a good overview of estate taxes. If any of these issues are relevant to you, meet with an experienced estate planning attorney to learn how your state’s tax laws may impact your children’s inheritance.

A well-created estate plan can help you achieve your goals and minimize tax liability. There are three types of taxes the IRS levies on gifts and inheritances.

Few families worry about federal estate taxes for now. However, this will change in the future and planning is always wiser. In 2023, the federal estate tax exemption is $12.92 million. Estates valued above this level have a tax rate of 40% on assets. People at this asset level usually have complex estate plans designed to minimize or completely avoid paying these taxes.

An estate not big enough to trigger federal estate taxes may still owe state estate taxes. Twelve states and the District of Columbia impose their own state taxes on residents’ estates, ranging from 0.8 percent to 20 percent, and some have a far lower exemption level than the federal estate tax. Some begin as low as $one million.

Six states impose an inheritance tax ranging between 10 percent and 18 percent. The beneficiary pays the tax, even if you live out of state. Spouses are typically exempt from inheritance taxes, which are often determined by kinship—sons and daughters pay one amount, while grandchildren pay another.

Taxpayers concerned about having estates big enough to trigger estate or inheritance taxes can make gifts during their lifetime to reduce the estate’s tax exposure. In 2023, the federal government allows individuals to make tax-free gifts of up to $17,000 in cash or assets to as many people as they want every year.

A couple with three children could give $17,000 to each of their children, creating a tax-free transfer of $102,000 to the next generation ($17,000 x 3 children x 2 individuals). The couple could repeat these gifts yearly for as long as they wished. Over time, these gifts could substantially reduce the size of their estate before it would be subject to an estate tax. It also gives their heirs a chance to enjoy their inheritance while their parents are living.

It should be noted that gifts over $17,000 in 2023 count against the individual estate tax limit. Therefore, your federal estate tax exemption will decline if you give more than the limit. This is why it’s essential to work with an estate planning attorney who can help you structure these gifts and discuss other estate tax and asset protection strategies.

Questions? Contact us to review your estate plan with one of our experienced estate planning attorneys.

Reference: Woman’s World (April 5, 2023) “If You’re Rich, Read This—Your Estate Taxes Could Be at Stake (And Your Kids at Risk of Losing Their Inheritance”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Read more about the article What Happens When Gift and Estate Tax Exemptions Change? – Annapolis and Towson Estate Planning

What Happens When Gift and Estate Tax Exemptions Change? – Annapolis and Towson Estate Planning

The federal lifetime gift and estate tax exclusion will increase for inflation in 2023 to $12.93 million.  There may be similar increases for inflation in 2024 and 2025, according to a recent article from Think Advisor titled “The Estate and Gift Tax Exclusion Shrinks in 2026. What’s an Advisor to Do?”

This is the good news for wealthy Americans. However, there’s bad news in the near future. Under the Tax Cuts and Jobs Act, these historically high levels will end on December 31, 2025. Estate and gift exclusions will drop to the pre-2017 level of $5 million, adjusted for inflation. Estimates for 2026 vary, but most expect the amount may reach $6.8 million per person.

For Americans who saw the value of their homes and portfolios increase in the last ten years, this level becomes uncomfortably close when considering the overall value of their estate. Here’s some help on how to minimize estate taxes in coming years.

What is the Estate and Gift Tax Exclusion in 2023?

Every year the annual estate and gift tax exclusion is adjusted for inflation. Gifts at or below this amount are not counted towards your lifetime exemption. For example, in 2022, the annual exclusion was $16,000 and in 2023, it is $17,000.

If you haven’t made any gifts to remove assets from your estate before 2026, your lifetime gift and estate tax exemption will revert to 2026 levels. If you made gifts prior to 2026, several different scenarios may apply.

If the amount of your gift was less than the exemption amount in place in 2026 or beyond, your remaining exclusion will be the amount of the exemption minus the amount of your lifetime gifts. Let’s say the exclusion is $6.8 million and you’ve given $3 million in lifetime gifts. The remaining exclusion would be $3.8 million. Any gifts over this amount would be subject to estate taxes.

If the amount of your gifts before 2026 exceeded the limit in place, the exemptions from the old limits will apply to those gifts. However, there won’t be any additional exemptions. Here’s an example: if you made $9 million in gifts before 2026, this would be your exemption amount upon your death. There would be no additional exemption for 2026 or beyond, unless the inflation-adjusted exemption exceeded $9 million in the future.

To be blunt, the higher exemption amounts in place are “use it or lose it.” Any difference between the higher exemption amounts and the post-2025 reduced amounts will be lost if not used. Any gifts made in excess of the higher exemptions in place before 2026 will still fall under the higher exemption upon death.

There are steps to be taken to reduce your taxable estate and make the most of the current limits. Which steps to take depends on the size of the estate, the nature of heirs, marital status, health status and other factors.

One strategy is to spend down assets. Take the big vacations, travel to out-of-town sporting events, enjoy the wealth you worked so hard to accumulate. This lifestyle can add up over time and fit in with an overall plan of minimizing your taxable estate.

Gifting to charity is another excellent way to reduce the size of a taxable estate while building a legacy. Current-year gifts of cash appreciated securities and other assets can provide a tax deduction to also reduce current year income taxes. Contact us to speak with one of our experienced estate planning attorneys about using a Donor Advised Fund, Charitable Lead Trust, or Charitable Remainder Trust.

If you are married, assets left to a surviving spouse have no estate tax consequences, except for a non-citizen spouse, who may not benefit from the unlimited marital deduction rules. One option is for the surviving spouse to elect to take the decedent spouse’s unused lifetime exclusion.

Reference: Think Advisor (Dec. 7, 2022) “The Estate and Gift Tax Exclusion Shrinks in 2026. What’s an Advisor to Do?”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Read more about the article Who Needs a SLAT Trust? – Annapolis and Towson Estate Planning

Who Needs a SLAT Trust? – Annapolis and Towson Estate Planning

The most common estate planning technique used in 2020-2021, according to a recent article from Think Advisor, was the Spousal Lifetime Access Trust (SLAT). The SLAT has become increasingly popular for married couples at or above the current estate planning exemption level, as described in the article “9 Reasons This Popular Trust Isn’t Just for the Super-Wealthy.”

SLATs allow couples to move assets out of their estates and, in most cases, out of the reach of both creditors and claimants. Each spouse can still access the assets, making the SLAT a valuable tool for retirement.

In the past, SLATs were not used as often for clients with $1 million to $10 million in net worth. However, the SLAT accomplishes several objectives: optimizing taxes, protecting assets from creditors and addressing concerns related to aging.

Lock in Estate Tax Exemptions Among Uncertainty. SLATs are a good way to secure estate tax exemptions. Various proposals to slash the current estate tax exemptions before the sunset date (see below) makes SLATs an attractive solution.

Potential Restrictions to Grantor Trusts. There has been some talk in Washington and the Treasury about restricting Grantor Trusts. The SLAT eliminates concern about any future changes to these trusts.

Upcoming Change in Estate, Gift and GST Exemptions. When the 2017 tax overhaul expires in 2026, the gift, estate and generation skipping trust exemption will be cut in half. Now is the time to maximize those exemptions.

A Possible Planning Tidal Wave. There may be a big movement to act as 2026 draws closer and SLATs become a tool of choice. Before the wave hits and Congress reacts, it would be better to have assets protected in advance.

SLATs Work Well for Married Couples. Each spouse contributes assets to a SLAT. The other spouse is named as a beneficiary. The assets are removed from the taxable estate, securing the exemption before 2026 and assets are protected from claimants and creditors.

You Might Meet the Estate Tax Threshold in the Future. Even if your current estate doesn’t meet the high threshold of today, if it might reach $6 million in 2026, having a SLAT will add protection for the future.

Income Tax Benefits. A trustee can distribute funds and income to a beneficiary in a no-tax state, saving state tax income tax, or if the trust may be formed in a no-tax state and possibly avoid the grantor’s high home state income tax.

Asset Protection Planning. Many people don’t think about asset protection until it’s too late. By starting now, when assets are below $10 million, the asset protection can grow as wealth grows.

Shrinking the Need for Other Trusts. Depending on their financial situation, a couple may be able to use a SLAT trust and avoid the need for other trusts requiring annual gifts and Crummey powers. The SLAT may also eliminate the need to have a trust for their children.

Speak with your estate planning attorney to learn if a SLAT is appropriate for your family, now and in the near and distant future. These are complex legal instruments, requiring skilled professional help in assessing their value to your estate.

Reference: Think Advisor (Nov. 16, 2022) “9 Reasons This Popular Trust Isn’t Just for the Super-Wealthy”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Read more about the article Could Your Estate Plan Be a Disaster? – Annapolis and Towson Estate Planning

Could Your Estate Plan Be a Disaster? – Annapolis and Towson Estate Planning

You may think your estate plan is all set. However, it might not be. If you met with your attorney when your children were small, and your children are now grown and have children of their own, your estate could be a disaster waiting to happen, says a recent article “Today’s Business: Your estate plan—what could go wrong?” from the New Haven Register.

Most estate planning attorneys encourage their clients to revisit their estate plan every three to five years, with good reason. The size of your estate may have changed, you may have experienced a health issue, or you may have a new child or a grandchild. There may be tax law changes, statutes may have been updated and the plan you had three to five years ago may not accomplish what you want it to.

Many people say they “have nothing” and their estate is “simple.” They might also think “my spouse will get everything anyway.” This is wrong 99% of the time. There are unintended consequences of not having a will—accounts long forgotten, an untimely death of a joint owner, or a 40-year-old car with a higher value than anyone ever expected.

Your last will and testament designates who receives your assets and provides for any minors. A will can also help protect your wishes from a challenge by unwanted heirs after your passing.

The federal estate tax exemption today is $12.6 million, but if your will was created to minimize estate taxes when the exemption was $675,000, there may be unnecessary provisions in your plan. Heirs may be forced to set up inherited trusts or even sub-trusts. With today’s current exemption level, your plan may include trusts that no longer serve any purpose.

When was the last time you reviewed your will to see whether you still want the same people listed to serve as guardians for minor children, executors, or trustees? If those people are no longer in your family, or if the named person is now your ex, or if they’ve died, you have an ineffective estate plan.

Many adults believe they are too young to need an estate plan, or they’ve set up all of their assets to be owned jointly and, therefore, don’t need an estate plan. If one of the joint owners suffers a disability and is receiving government benefits, an inheritance could put all of their benefits at risk. Minor children might inherit your estate. However, the law does not permit minors to inherit assets, so someone needs to be named to serve as their conservator. If you don’t name someone, the court will, and it may not be the person you would choose.

What about using a template from an online website? Estate planning attorneys are called in to set things right from online wills with increasing frequency. The terms of a will are governed by state law and often these websites don’t explain how the document must be aligned with the statutes of the state where it is signed. Estate plans are not one-size-fits-all documents and a will deemed invalid by the court is the same as if there were no will at all.

If you don’t have an estate plan, if your estate plan is outdated, or if your estate plan was created using an online solution, your heirs may inherit a legal quagmire, in addition to your coin collection. Give yourself and them the peace of mind of knowing you’ve done the right thing and contact us to have your will updated or created with one of our experienced estate planning attorneys.

Reference: New Haven Register (Oct. 29, 2022) “Today’s Business: Your estate plan—what could go wrong?”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Read more about the article What Is Upstream Planning? – Annapolis and Towson Estate Planning

What Is Upstream Planning? – Annapolis and Towson Estate Planning

Estate planning with an eye to a future inheritance, known as “upstream planning,” can be especially important where families pass significant wealth from generation to generation. Knowing these details in advance can have a big impact on deciding on how to manage the heir’s own assets, as explained in the article “Expecting an Inheritance? Consider Coordinating Your Estate Plan with Your Parents’” from Kiplinger.

What happens when information is kept private? In one example, a patriarch refused to share any details, despite having children who had succeeded on their own and didn’t really need their inheritances. The family was left with an eight-figure estate tax bill.

Clear and open discussions make sense. If a person has an estate large enough to need to pay federal estate taxes, inheriting more will add to their heir’s tax burdens. Parents may choose to leave assets to heirs through a trust. Money in a trust belongs to the trust, so in addition to tax benefits, the trust is a good way to protect assets from creditors, litigation, or divorce.

Trusts are also used to take advantage of the GST—generation skipping tax exemption. The executor of the parents’ estates can apply their GST exemption to the trust, which will not be taxed when they are distributed or passed to grandchildren, even if the grandchild is a beneficiary of the trust.

Business considerations also come into play. If a couple built and grew a business now being run by their granddaughter, and the grandsons have had little or no involvement, their wishes should be clarified: do they want their granddaughter to be the sole heir? Or do they want the grandsons to receive cash or other assets or any shares of the business?

Talking about multigenerational wealth early and often provides benefits to all concerned. The more money a family has, the more it makes sense to have those conversations and not only from an estate tax perspective. Those who created the wealth can use upstream planning as a way to start conversations about their success, family values and hopes for how heirs and future generations will benefit.

In some families, these conversations won’t happen because they think it’s too private or don’t want their children and grandchildren to feel they don’t need to work hard to become responsible citizens.

Communicating and coordinating are vital to success. Your estate planning attorney will be able to provide guidance, having seen what happens when upstream planning occurs and when it does not.

Reference: Kiplinger (Oct. 4, 2022) “Expecting an Inheritance? Consider Coordinating Your Estate Plan with Your Parents’”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Is Your Estate Plan Ready for Tax Changes? – Annapolis and Towson Estate Planning

After December 1, 2025, the federal estate tax exemption will fall back to $5 million (indexed for inflation) from the current $12 million level. Now is the time to use available estate planning strategies and ensure that your plan factors in changes in tax law, advises a recent article titled “Are Clients’ Current Estate Plans Soundproof for the Future?” from Financial Advisor.

For many families, structured and leveraged gifting is one of the most useful wealth transfer vehicles. A parent could use their GST and gift tax exemptions to make gifts to children, grandchildren and other family members before this tax law changes.

Here is an example, using a high-net-worth family. Bill and Sue are married, so they can make combined lifetime gifts of $24,120,000. They own a family business worth $10 million in equal shares. They transfer 20% of the business to their children. This is a minority stake, meaning the minority owners have no right to make relevant business decisions and vote on important issues. As a result, the minority stake is discounted and worth $1.3 million instead of $2 million for gift and estate tax purposes and Bill and Sue retain $700,000 more of their allotted exemption.

For lifetime transfers, the valuation date is the date of the gifting, but for transfers at death, the valuation date is the date of death. By using this valuation discount while they are living, Bill and Sue have reduced the value of their company for estate tax purposes, giving their children a percentage of the company in a manner costing less in terms of transfer tax.

By making these gifts in 2022, Bill and Sue have removed $24,120,000 from their estate tax free. They have also removed the appreciation on the assets gifted away from their estate. However—if the gift is not made and the federal estate tax exemption reduces to $6 million per person before their deaths in 2040, then when the second spouse dies, heirs or beneficiaries will receive significantly less than what they would have received if the gift was made prior to the reduction of the federal exemption.

There was concern about tax outcomes if the taxpayer makes gifts now and the exemptions are reduced sooner. However, the IRS Treasury Decision 9884 confirms there will be no claw backs under these circumstances.

If the parents are concerned about making outright gifts to chosen beneficiaries who are too young, immature, or vulnerable to creditors, other strategies can be used to allow them to maintain control, while protecting assets and locking in these estate and gift tax advantages. The grantor can execute a plan ensuring that the donor receives an income from the transferred asset and/or maintaining access to principal.

Speak with an experienced estate planning attorney to learn what strategies are available now to prevent overly burdensome estate taxes in the future. After all, 2025 is not as far away as it seems.

Reference: Financial Advisor (June 8, 2022) “Are Clients’ Current Estate Plans Soundproof for the Future?”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

What Is the Proposed IRS Anti-Clawback Provision? – Annapolis and Towson Estate Planning

The proposed amendment is designed to fix some loopholes in a 2019 regulation passed in response to the 2017 Tax Cuts and Jobs Act. The 2017 law doubled the value of the estate and gift tax exemption until December 31, 2025, when it goes from $12.06 million to $5.49 million. According to this recent article from Financial Advisor titled “Amending The IRS’s Anti-Clawback Provision on Gifting,” the law generated concern among those who wanted to make large gifts to take advantage of the historically high federal estate and gift tax exemption.

The concern was whether the IRS would attempt to clawback the taxes, if the taxpayer died after 2025. This is when the estate tax reverts back to a much lower number. A regulation was issued in 2019 to reassure taxpayers and explain how they could take advantage of the high exemption as long as they made gifts before 2026, regardless of the exemption at the time of their death.

The IRS recognized this as a good step. However, it had a loophole and hence the new proposed amendment. The amendment provides clarity on what constitutes an actual gift. If the donor garners a benefit from the gift or maintains control over the gift, is it really a gift?

Giving the gift of a promissory note worth $12.06 million to lock in the high exemption and leaving it unpaid until death, for instance, is not a gift. The person is not actually giving anything away until after death. Therefore, the note is part of the taxable estate and bound by the estate tax exemption amount in place at the day of death.

The same goes for a person who gives ownership interests in a limited liability company, while continuing to serve as the company’s manager. Taxpayers must be very careful not to mischaracterize their gifts to stay on the right side of this regulation.

Another example: let’s say a person puts a $12 million vacation home into an LLC, with clear directions for home to be kept in the family, and then makes gifts of the LLC ownership interests to the children. If the donor wants those gifts to max out the current $12.06 million exemption, rather than be subject to the lower exemption in place at the date of death, the owner should not be the manager of the LLC. The same goes for the owner living rent-free in any property he’s gifted to anyone, if the wish is to take advantage of the gifting exemption.

In the same way, a mother who places money into a trust fund for a child may not serve as a trustee and control the assets and distributions, if she wishes to take advantage of the tax benefit.

If your estate plan uses grantor annuity trusts (GRATs), Grantor Retained Income Trusts (GRITs) and qualified personal residence trusts (QPRTs), speak with your estate planning attorney. If you die during the annuity period or term of the trust, your estate may lose the benefit of the anti-clawback regulation.

If the amendment is approved, which is expected in late summer, make sure your estate plan follows the new guidelines. If you are truly giving gifts before 2026, you will likely be able to take advantage of this substantial tax benefit and pass more of your estate to your heirs.

Reference: Financial Advisor (May 27, 2022) “Amending The IRS’s Anti-Clawback Provision on Gifting”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

What Happens to Parents’ Debt when They Die? – Annapolis and Towson Estate Planning

There are two common myths about what happens when parents die in debt, says a recent article “How your parents’ debt could outlive them” from the Greenfield Reporter. One is the adult child will be liable for the debt. The second is that the adult child won’t.

If your parents have significant debts and you are concerned about what the future may bring, talk with an estate planning attorney for guidance. Here is some of what you need to know.

Debt does not disappear when someone dies. Creditors file claims against the estate, and in most instances, those debts must be paid before assets are distributed to heirs. Surprisingly to heirs, creditors are allowed to contact relatives about the debts, even if those family members do not have any legal obligation to pay the debts. Collection agencies in many states are required to affirmatively state that the family members are not obligated to pay the debt, but they may not always comply.

Some family members feel they need to dig into their own pockets and pay the debt. Speak with an estate planning lawyer before taking this action, because the estate may not have any obligation to reimburse you.

For the most part, family members do not have to use their own money to pay a loved one’s debts, unless they co-signed a loan, are a joint-account holder or agreed to be held responsible for the debt. Other reasons someone may be obligated include living in a state requiring surviving spouses to pay medical bills or other outstanding debts. If you live in a community property state, a spouse may be liable for a spouse’s debts.

Executors are required to distribute money to creditors first. Therefore, if you distributed all the assets and then planned on “getting around” to paying creditors and ran out of funds, you could be sued for the outstanding debts.

More than half of the states still have “filial responsibility” laws to require adult children to pay parents’ bills. These are old laws left over from when America had debtors’ prisons. They are rarely enforced, but there was a case in 2012 when a nursing home used Pennsylvania’s law and successfully sued a son for his mother’s $93,0000 nursing home bill. An estate planning attorney practicing in the state of your parents’ residence is your best source of the state’s law and enforcement.

If a person dies with more debts than assets, their estate is considered insolvent. The state’s law determines the order of bill payment. Legal and estate administration fees are paid first, followed by funeral and burial expenses. If there are dependent children or spouses, there may be a temporary living allowance left for them. Secured debt, like a home mortgage or car loan, must be repaid or refinanced. Otherwise, the lender may reclaim the property. Federal taxes and any federal debts get top priority for repayment, followed by any debts owed to state taxes.

If the person was receiving Medicaid for nursing home care, the state may file a claim against the estate or file a lien against the home. These laws and procedures all vary from state to state, so you will need to talk with an elder law attorney.

Many creditors will not bother filing a claim against an insolvent estate, but they may go after family members. Debt collection agencies are legally permitted to contact a surviving spouse or executor, or to contact relatives to ask how to reach the spouse or executor.

Planning in advance is the best route. However, if parents are resistant to talking about money, or incapacitated, speak with an estate planning attorney to learn how to protect your parents and yourself.

Reference: Greenfield Reporter (Feb. 3, 2022) “How your parents’ debt could outlive them”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Is Estate Tax Exemption Going to Change? – Annapolis and Towson Estate Planning

In 2022, the estate and gift tax exemption increases from $11.7 million in 2021 to $12.06 million per individual, according to new inflation-adjusted numbers from the IRS. The gift tax annual exclusion also increases, from $15,000 to $16,000. The IRS announced these numbers, as well as tax brackets, standard deductions and more, as reported in the article “New Higher Estate And Gift Tax Limits for 2022: Couples Can Pass On $720,000 More Tax Free” from Forbes.

The estate tax is 40% on the biggest estates, but wealthy individuals use legal strategies, like transferring wealth to heirs while they are living, making big gifts and also making multiple $16,000 annual exclusion gifts that do not count against the $12 million lifetime limit.

In 2022, a wealthy person may leave $12.06 to heirs with no federal estate or gift tax. A married couple may leave $24.12 million. If by some chance a couple has maxed out their lifetime gifts, this latest increase means they have the option to give away another $720,000 in 2022.

A series of annual exclusion gifts of $16,000 can add up, especially when they are done in a planned method over an extended period of time. Since these gifts do not count toward the $12 million amount, they are especially valuable for managing estate tax liability.

Estate sizes may also be reduced by making direct payments for medical and tuition expenses, for as many people as desired, with no gift or tax consequences. There is no limit on the amount to be paid, as long as these payments are made directly to the institution.

There are any number of ways to take money out of an estate. These include outright gifts, loans to family members and special trusts. A variety of trusts are created to preserve family wealth, from simple to complex trusts used to extend wealth across many generations.

In addition to planning for the increased numbers for 2022, this is also the time to check on basic estate planning documents and be certain they are up to date. These include a will, any kind of revocable living trust, a durable power of attorney, a healthcare directive and a living will. If the family includes a special needs member or a disabled individual, there are other planning methods to be discussed with an experienced estate planning attorney.

Despite the good news of these increases, the $12 million estate tax exemption will be halved at the start of 2026. The historical high exemption was created under President Donald J. Trump by the 2017 Tax Cuts and Jobs Act, which temporarily doubled the estate tax exemption from 2018 to 2025. While there was a lot of discussion about the Infrastructure Bill and funding through estate taxes, any provisions impacting estate planning were dropped before the bill was passed.

One more reason to gift now: state estate taxes and inheritance taxes are still alive and well in many states. If you live in a state with these taxes, the state tax bite could be just as bad, if not worse, than the federal tax.

Reference: Forbes (Nov. 11, 2021) “New Higher Estate And Gift Tax Limits for 2022: Couples Can Pass On $720,000 More Tax Free”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

What Is the First Thing an Executor of a Will Should do? – Annapolis and Towson Estate Planning

Serving as an executor can be like having a second job. The size of the estate and your relationship to the deceased can make it a bit overwhelming, especially for adult children handling the estate of their last surviving parent. Those executors typically distribute not only financial assets, but decades of personal property, says the article “What to Do When You’re the Executor” from Yahoo! Finance. If the family is prone to arguments, or the estate is large, or both, the job of the executor can be even more challenging.

The first thing to do is obtain the death certificate. Depending on your state, the funeral home or state’s records department in the location where the death occurred will have them. Get five to ten originals, with the raised seal. You will need them to gain control of assets.

Next, file the will and the death certificate with the county probate court. The deadline for filing the will varies by state. However, it can range from ten to ninety days to six months to one year after the date of death. If probate is necessary, you will also need to obtain a “Letter of Testamentary.” This court-created document says you are the legally authorized person to manage the estate. Until you have this letter, you cannot move forward with any of the assets.

Build your team of professional advisors. An experienced estate planning attorney will help navigate probate court. You may also need a CPA and a financial planner. If possible, contact the estate planning attorney who drew up the will, because they are probably familiar with the will, the estate and possibly with the deceased.

Inventory assets. After death is when we learn a lot about those we loved. Were they hyper-organized, keeping records in an easily understood system? Did they file insurance policies under the name of the insurance company, or leave papers in a stack in no order whatsoever? Go through every box and file cabinet to make sure you do not miss anything.

Protect personal property. If the estate included a home, you must make sure that mortgage and tax payments are made. If you do not know who had keys to the house, investing in the services of a locksmith and a new set of locks and keys could save you from unscrupulous family members who believe certain items belong to them. If a car is sitting in the garage, it will need to be cared for and the title of ownership will need to be dealt with.

Obtain a federal EIN number from the IRS and use it to open an estate bank account. Until the estate is settled, the executor needs to pay bills and make deposits. A separate bank account prevents co-mingling funds, makes it easier to track transactions and is useful, if there are any challenges to your decisions as executor.

Pay any outstanding debts. The executor may be personally liable if debts from the estate are not paid before the estate assets are distributed. You are also responsible for filing state and federal tax returns for the last year the person was alive, as well as a federal tax return for the estate.

To head off potential animosity, stay in touch with beneficiaries. Let them know what you are doing, especially if the process is taking a while. Keep excellent records to reflect your activities.

Distributing assets may require court approval, depending on where the decedent lived. If the will contains specific directions for personal items, you will be in better shape than if there are no directions. If not, review the inventory of assets to see how things can be equitably distributed. Do not underestimate the emotional response to this part of the process. Families have battled over items of little monetary value.

It is a good idea to get a release from beneficiaries acknowledging they have received their inheritance. An estate planning attorney can help with preparing the language to help minimize any challenges in the future.

Reference: Yahoo! Finance (Oct. 29, 2021) “What to Do When You’re the Executor”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys