Chapter 9

Realizing that different situations (including the domicile state) may cause different courses of action, the following steps are those most often taken:

1) Very personal matters are handled first. This often includes funeral arrangements and the related items concerning death certificates, and so forth. More often than not, these items are handled by the immediate family, rather than by the executor. Still, the executor needs to be available in case he or she is needed.

2) Immediate funds for the family's living expenses are the next concern. Often, there is the fear on the part of the family that probate will freeze all funds leaving the family in a desperate situation. A responsible executor will be quick to dispel such fears.

If a business is active, this business will also need to be managed until a family member is both able and willing to take it over.

3) Next the will needs to be proven and court proceedings started. Note that the family's immediate financial needs were handled even before the will. Again, this is the duty of a responsible executor.

4) Insurance policies need to be collected and the companies notified of the decedent's death. This will require copies of the death certificate. This will make additional funds immediately available to the beneficiaries, as long as specific beneficiaries were named in the policies, since anything with a stated beneficiary does by-pass probate. It would be foolish to list "estate" as the beneficiary, since that would then throw the proceeds into the probate process.

5) An inventory is required in some states and that formal inventory must be filed in the court proceedings. This is often a good idea even if not required by the state.

6) Fiscal management may be among the most time consuming parts of the probate proceedings. This often includes managing current businesses, preparing an estate budget, figuring tax requirements as soon as an approximate estate value is known, liquidating assets to meet any cash needs, and generally just the use of good common sense in managing the estate.

7) Some states require that assets be appraised by an official appraiser, generally appointed by the court or a state taxing authority. In other states, the executor uses opinions of specialists (that are accepted by the Internal Revenue Service) to determine values of items in the estate.

Generally, the appraisers are going to be mainly concerned with items of value. Normally, it is recommended that all appraisals be in writing. This protects both the estate and the executor.

8) If directed in the will, preliminary distribution of property begins. Generally, the estate must first be proven to be solvent.

9) Any claims against the estate can also begin to be settled in whole or in part, as determined desirable or necessary. This needs to be balanced against the proper applications of the assets to the various claims.

10)Any obligations owing the estate must be collected. Properties owned by the estate must also be retrieved. Any clouded titles need to be cleared.

11)Of course, all taxes must be paid. Tax returns need to be prepared and all supporting documents collected. Taxes may include income taxes, federal estate taxes, state inheritance taxes, if applicable, and gift taxes. Exorbitant tax demands by taxing authorities need to be carefully examined by an independent specialist before being paid. In a few states, such as Washington state, there are no state death taxes.

12)The final distribution and the closing of the estate may often be very simple. If the will was current and properly written, the vast portion will be clearly stated. Old, outdated wills may prove to be less simple.

13)The basis for future capital gains is something that may affect beneficiaries. Property subject to federal estate tax gets a new tax basis equal to the date of death value (or alternate valuation date value, if that is selected). The executor should advise each beneficiary of the basis of the assets he or she receives.

Certainly, these thirteen steps may sometimes overlap or come in a somewhat different order. Some of the steps may not even be applicable. For example, there may be no claims against the estate, except for current household expenses (such as electricity). It is most important that meticulous records be kept by the executor throughout the probate process. All transactions need to be thoroughly documented. Many times, it is wise to have an accountant prepare an audit for the estate.

There are many things that can delay the settling of an estate. Since there are so many possibilities of delay, we will discuss only the more common delays. These include, but may not be limited to:

[ The principal asset is one that is very difficult to appraise. It may be real property (real estate), an ongoing business, or any number of assets. Perhaps the Internal Revenue Service (IRS) takes two or three years to make up its collective mind. Tax litigation follows if the beneficiaries do not agree with the IRS. Perhaps five or six years go by before the estate is finally settled.

[ The major beneficiary (typically a spouse) and the executor resist payment of an enormous claim made against the estate. The claim is fought for several years through the courts before a decision is handed down and the estate can be settled.

[ The decedent (testator) made a major mistake when making out his or her will. Therefore, the will is left open to contest by a possible beneficiary. Since certain family members are entitled to participate in a will, the failure to include one member in some manner can cause delays.

When delays occur during probate, it is important to realize that probate procedures themselves do not cause the delays. Generally, those delays are caused by the judicial system as a whole. Its impact can be seen in all types of legal procedures besides probate. Unfortunately, when delays occur in probate proceedings, it's consequences touch the lives of many people. It is sometimes said that living trusts avoid delays of probate. While they certainly do by-pass the probate procedure, trusts cannot escape the legal system itself. Lawsuits may be brought by any legally interested party against a will, trust or any type of legal document. Since all citizens have the right to their day in court, this possibility cannot be ignored. A well written legal document is always worth the money spent. A poorly written legal document (of any type) is too expensive, even if obtained free of charge.

A well written legal document is always worth the money spent.

A poorly written legal document (of any type) is too expensive,

even if obtained free of charge.

Small, simple estates may require as much thought and planning as large estates, in many cases. This may especially be true if postmortem expenses must be met and there are several beneficiaries to be remembered. Of course, the term "small" may have vastly different meanings to different people and to different organizations. Small estates generally always work best with a will versus a living trust. Since a trust is more expensive to set up (and small estates could better use the money elsewhere) and since taxation is certainly no problem to the estate, it would be foolish to advise a small estate to go into a living trust. It needs to be further pointed out that a living trust never avoids taxation. A trust may change WHO is responsible for paying taxes, but taxes will always be paid by someone. In 1987 that federal exemption amount on an estate became $600,000. Therefore, the Internal Revenue Service (IRS) considered any estate under that amount too small to tax. This exemption will change gradually between 1998 and 2006 eventually reaching $1,000,000. Realize that a couple (husband and wife) could each use the exemption, allowing the household double the amount allowed. When working with this amount of assets, it is highly recommended that one see a tax attorney or a specialized accountant for the best planning possible. Many would consider even $600,000 to be a sizable estate. By 2006 when the figure reaches $1,000,000 (one million!) this will be a sizable exemption. So, as stated, the term "small" may have vastly different meanings to different people or organizations.

The actual increase in the Estate and Gift Tax Unified Credit law, which exempts the first specified amount from taxation will follow the following schedule:

Amount:	In Year:
$625,000	1998
$650,000	1999
$675,000	2000
$675,000	2001
$700,000	2002
$700,000	2003
$850,000	2004
$950,000	2005
$1,000,000	2006

Many states have state death taxes, but a few states do not. Every state may be different in tax structure and a testator will want to consult with a specialist in the state where probate occurs. No estate is small in the sense of being unimportant. Every estate is important to those involved with it. Therefore, size is important only in the sense of how to best manage it. Some would say it is more a matter of not mismanaging it.

It has become increasingly popular to utilize living trusts in the last few years. Because there is profit to be made here by some individuals and organizations, living trusts are often advertised as the way that every estate should be settled, regardless of size or circumstance. Just as no one insurance policy is right for everyone, no one particular estate plan is right for everyone either. Living trusts are certainly good for some situations and some individuals. They do by-pass the probate proceedings, as well as offer other advantages. However, the small, simple estate will never be harmed by the probate process. These small estates generally need not fear delays since only if someone were to contest the will would there be a problem. Since the current tax laws will not federally tax estates under $600,000, federal taxation is not to be feared either. A well written will should do a very good job (for a lot less money and time) for the small, simple estate. Even large estates fall under this category if the assets are simple in their nature. If only the family home, personal property, and a few thousand dollars are involved in the estate, do not advise a living trust. You will not be doing a good job for your client.

Consider this small, simple estate:

A home with no mortgage owing	$60,000
Savings account with Rights-of-Survivorship	5,000
Certificate of Deposit with a listed beneficiary	15,000
Tangible personal property	5,000
Total Value:	$85,000

The survivor need only:

Pay current household bills

Pay expenses of last illness, funeral and internment. Be sure to utilize all medical insurance policies, Medicare if applicable, lodge, union, or veterans benefits.

Go to the bank and arrange for a new Certificate of Deposit with a new listed beneficiary. As previously stated, anything with a listed beneficiary already by-passes the probate proceedings.

Change bank accounts to survivor and successors.

Depending on the probate state, pay a nominal tax (on amounts over the limit allowed for state death taxes). This would not apply in states where no taxes of this nature exist.

Obviously, settling this small, simple estate required very little effort. The things that needed to be done would have been the normal course of events whether a will or living trust was in place. A will did the job very well. If only a husband and a wife are concerned as beneficiaries, they may select only a Community Property Agreement in those states where such an agreement would apply. An attorney will do this for a nominal sum and it will do as well as anything else in transferring their property to the other spouse. To have used a living trust in the estate we illustrated would have been "over-kill" at the very least. Only those who charged the client to set up the living trust would have benefited to any degree. The client would have spent funds that would have been more useful elsewhere. There will always be those who still argue that the trust is a valid tool even in such small, simple estates. The ending statement can only be one thing: do for your clients what you would want done for yourself or your own parents or grandparents. If you are using a living trust for small estates, it must be assumed that you have also arranged a living trust for those you love in similar situations.

A trust that is not funded with assets is called a non-funded trust.

This simply means that no assets have been placed into the trust.

The fact that living trusts have become a money-maker for insurance agents and organizations marketing them will mean that many simple estates will be put into living trusts. If the family is not properly advised (including possible beneficiaries of the trust), these trusts will possibly end up as Empty or Non-funded Trusts. That is, there will be virtually nothing in them. These may be called a variety of things, but generally the term Non-funded Trusts is used. When a will is written, it covers all that the testator legally owns. When a living trust is written, it covers only those assets which are properly transferred into that trust. If property, for instance, is not deeded over to the trust, then it is not covered under that trust. Items with a stated beneficiary need not be put under the trust because it will pass outside of the probate proceedings already. This would include savings and checking accounts with Rights-of-Survivorship, life insurance policies, including annuities, Certificates of Deposit, and many other items. Some of the "do-it-yourself" trusts, which may be purchased through the mail, leave it up to the creator of the trust to list the assets to be covered under the trust. If property is one of the items and that creator fails to deed the property over to the trust, the fact that it is listed will not make any difference in most cases. It was not properly deeded to the trust. Therefore, that property is not covered under the trust under many state laws. Many of the creators of trusts will fail to do what is necessary. If the will that person had prior to the trust was destroyed (leaving no will in existence), then that property not covered legally under the trust may well end up in intestacy. In other words, if no will existed and with the trust being empty or non-funded, the state will step in to disperse the property as they see fit. The state may not do as the decedent would have done had the trust been properly set up (funded) or if a will had existed.

When such a situation occurs, lawsuits will certainly be filed by the beneficiaries. When the consumer's only contact was an insurance agent, he or she will most certainly be named in that lawsuit, even if an attorney was in the background in some capacity. Since past courts have established that an insurance agent is a "contract specialist" by the very nature of his or her business, it can easily be assumed that he or she will be liable to some degree. Most of the organizations marketing these trusts do have what might be termed a "no-fault" statement for the creator to sign. These no-fault statements say that the creator did not receive legal or accounting advice from the agent. When this comes to court, it is unlikely that these statements will save the agent from the lawsuits. The fact that the insurance agent was the personal contact and that the trust ended up being an "empty" or non-funded trust will be the outstanding facts.

No matter how good the trust document is, a will is still necessary.

Omitting a will is foolish and shortsighted.

The best way to avoid such a situation is simple. Anytime a living trust is put into effect, a will is still necessary to back it up. The will covers any and all assets not properly transferred to the living trust. It will also cover any and all assets acquired after the trust was written. The will prevents state intervention. It may also prevent a lawsuit against the agent or organization representing and selling the trust.

Preparing for postmortem management needs to begin at the earliest written will. While it is true that first wills typically are written by young couples who will likely live, not die, postmortem is still part of every well thought out will. Most early wills do tend to be written out of a sense of duty rather than a feeling of imminent death. Therefore, little importance is often put on postmortem management. Yet, we know that people do sometimes die young. Organizing the duties and problems of postmortem management will save hours of work by the executor and that saves money for the estate. Once the first postmortem notes are written, it actually is much easier to keep them updated thereafter. When we wait until late in life to do this, it is generally harder to put together. When we add the facts as they occur, the process really is much easier.

Preparation for postmortem management falls into seven categories:

1) Consolidating holdings

2) The homeland

3) Furnishing information

4) Anticipating appraisals

5) Liquidity

6) Fees of the executor and counsel

7) Various suggestions.

Realize that number seven states suggestions, not instructions. If actual directions are to be given, then it needs to be made a part of the actual will.

Regarding the other categories, number one, consolidating holdings, means a brief explanation of assets, which will be appreciated by the will's executor. Frequently, stock certificates or other items are found in a safe-deposit box that bear unknown names. The executor is required by law to do a thorough search to determine their value. It is not unusual for the cost of the search to exceed the certificate's actual financial value.

The variations of this scene are endless. The point here is obvious. When preparing postmortem management, take stock of the assets to determine what actually is worthwhile keeping. When examining your assets:

[ Take your losses (an income tax savings, anyway) and clear your safe-deposit box of any worthless securities.

[ Liquidate or identify all unlisted securities.

[ Sell small, odd lots and buy one issue when possible.

Some of these types of items are more likely to be held by older people rather than by younger people. Still, it is good to review what is held on a yearly basis, no matter what your age.

If sale of the sound odd lots would involve irritating capital gains, one might want to consider using them as tax-free gifts to those who would be the beneficiary of them eventually anyway. This could produce an advantage tax wise.

The homeland refers to the testator's residence.

Number two, the homeland, refers to the testator's residence. It is not unusual for a person to own more than one home. Although the testator clearly views one place as home, his or her actions may actually cloud where that place actually is. Perhaps a winter home is occupied more than six months out of the year, has a telephone number listed in the local directory, and perhaps they have even opened up a local checking account in the town where the winter home is located. To further complicate matters, a partial share is owned in a third residence. While these properties can be allocated easily enough through the will, the cost of postmortem management is certainly increased.

By prudent planning, the testator could have simplified the process. Simply put, a person should not casually act in a manner that might cause a new domicile or a confusion of which home is the legal domicile.

Number three, furnishing information, is an easy thing to do, yet it is rarely done. A simple list in a spiral notebook will be greatly appreciated by the family and the executor. The executor ends up spending endless hours (at a cost to the estate) compiling a list of assets. Most people could even use a loan application form from their local bank as their list of assets. Some of the things you will want to list include (but may not be limited to):

1) Real estate. List each parcel by the commonly used address. List where the deed is located. Any other pertinent papers should also be listed as to their location. If a mortgage is owed, give the name and address of the lender, along with the account number.

2) Stocks and bonds. List all of them, even if they seem small or unimportant. State where they are located. If they are in a safe-deposit box, state the location and the box number. Also state who has access to the safe-deposit box.

3) Mortgages, notes and cash. List each item, stating where each document can be found. Give the name of each bank, including the branch and account number. If any of the accounts are joint accounts, state that also. List the source of the funds, since that may have a bearing on whether or not they are taxable to the estate.

4) Life and other insurance policies. Any item with a listed beneficiary by-passes probate proceedings which provides immediate funds for those listed beneficiaries. Of course, if no one is aware of the policies, they won't do anyone much good. All insurance policies need to be listed, including life, health, disability, auto, fire, or any other type of policy one may have. Be sure to include policies provided by your employer, union, lodge or the military. Give the company name, the company address, the policy number, and the agent's name and telephone number, if available.

5) Jointly owned property. Describe the property and ventures of any kind that may not be listed elsewhere. Completely spell out what the property is, what your percentage of ownership is, names of persons who jointly own the assets with you, and where the property is located. Legal descriptions are helpful, if available. List as many details as possible since all may be useful to your executor.

6) Other miscellaneous property. This can include virtually anything. It might include furs, jewelry, antiques, household furnishings, and so forth. It is not necessary to provide values since generally these items would be appraised at your death, anyway. If past appraisals have been done, however, do include the information.

7) Gifts that must be reported. If gifts have been made which may be tax deductible to the estate, be sure to list them.

8) Powers of appointment. If a person has been given the right to designate a beneficiary under another person's will, this should be identified.

9) Annuities. This may already have been listed under the life insurance policies, but if not, do not overlook them. Again, list the company's name and address and the policy number. If income is being taken, state the amounts.

Every year this list should be updated. It is best to specify a time that this is done, such as the first week of each new year. By specifying a time to yourself to complete the update, it is more likely to be carried out.

Take items off the list that have been sold, lost or simply given away.

Add items that have been acquired.

Take items off the list that have been sold, lost or simply given away. Add items that have been acquired. It is wise to also list what is owed to others. Do not list normal household bills, such as electricity, water or food. You will want to list mortgages and other long term obligations that would still exist at the time of your death.

Still under the heading of furnishing information, your executor will need to answer many questions concerning you and your affairs. While this information is typically easily attained, it saves the estate money to have it readily available to the executor.

Some of the things that should be listed include (but may not be limited to):

The testator's full name and any nicknames used.

The testator's maiden name, if applicable, and all other names used in previous marriages.

The testator's date and place of birth.

Citizenship.

Social Security number.

Legal domicile (home address).

Business or occupation. If retired, the testator's former employer.

Military record.

Date of the testator's marriage and, if applicable, the date of divorce.

If widowed, the name of the testator's deceased spouse and the date of their death.

All of the testator's children's full names, their dates of birth and places of birth. It may also be helpful to include:

a) the children's married names

b) their current addresses

c) any special information, such as adoption dates and so forth.

Any illegitimate children the testator may have who might wish to make claims on the estate.

The full names of the testator's parents and siblings. Give both the maiden and married names. List dates of death for any brother or sister that has died.

Complete names and addresses of any people or organizations which the testator has named in his or her will. This will simplify greatly any possible confusion as to who the testator meant to inherit.

Number four, anticipating what will need to be appraised, will greatly aid the executor of the estate. Values will be fixed by the date of the testator's death. If the testator happens to have unusual items, such as special collections, try to give as much information as possible. If the testator is aware of specialized appraisers, they should be listed by name and address. Telephone numbers would also be useful to the executor. The estate will not benefit from over inflated opinions. The tax appraiser will want to use the highest opinion available, so it would be unwise for the testator to state his or her own opinions regarding the value of items in the estate. If past appraisals are available, a copy of them should be included.

Some items in an estate will need to be appraised.

In anticipation of this, the testator will want to provide as much

information as possible.

Number five, liquidity, will especially affect estates over $600,000 in value. Some liquidity will be required for federal taxes, as well as other debts and expenses. In many states, this will also be true for state death taxes. Life insurance policies, easily sellable securities or savings accounts may be used to supply these funds. The IRS generally realizes the time required to liquidate assets to pay federal taxes and allows the estate that time. Estates that are "land poor" may run into problems if the land is not easily sold. If a person realizes their estate will have this problem, it would be wise to buy a life insurance policy to provide liquid funds at death.

Number six, fees of executors and counselors, are generally one of two basic philosophies when figuring fees:

on a percentage basis, or

on a fair value of services rendered, computed in respect to each estate.

Either way can benefit the estate. It simply depends on the complexity of that estate and how well planned it was at the point of death. For estates that are well thought out and require little management, a "fair value of services rendered" would be the best financial choice. On the other hand, if a continuing business, for example, is included in the estate, that would probably require lots of time to manage, in which case a "percentage" basis might be the best buy.

The testator will want to include suggestions so that the executor

is able to carry out his wishes. These suggestions often apply to such

things as household pets or personal items with special meaning.

Number Seven, suggestions, is generally supplied for the benefit of the executor of the estate. It allows the executor to do his best to carry out the testator's wishes. If it concerns special situations, such as household pets, the testator would be the one most likely to be aware of possible solutions for placement, for example.

Price shopping is commonly overlooked by the testator, yet it is a wise thing to do whether utilizing a will or a living trust or trustees. It may involve looking for a lawyer to draw up the documents or a bank to act as a trustee.

If the estate is modest in size, legal time should be at a minimum. While it is true that you get what you pay for, it is just as true that there are a million ways to put yourself in a position to be overcharged.

When seeking legal advice, you will save yourself money by having everything laid out on paper beforehand. Include account numbers, addresses, etc. The more you do, the less the lawyer will need to do (at a price for his or her time). Know ahead of time who you wish to have for beneficiaries, trustees and so forth. Be prepared with FULL names and addresses, including zip codes. If property is involved, bring in property tax statements and, if possible, legal descriptions. Anything you do to be prepared will save time and money.

A person should place in their attorney's hands:

1. A complete list of their assets
2. Full personal data
3. An approximation of personal obligations
4. The roster of people and organizations who will be named in your will or trust. Include all who will need to be mentioned, even if no actual inheritance will be involved. This would include all children, legal or illegitimate.
5. An outline of objectives as to each beneficiary.

Besides saving time and money, chances are the lawyer will also be able to do a better job with the will, since he or she will have a more complete base of information with which to work. Some attorneys now use some type of form or questionnaire to gather complete information from their clients.

What the body of the will contains is up to the testator. As to the technicalities, the tax implications, and the legal wording, that should be up to the attorney, since he or she is probably in the best position to know the proper avenues to take.

Although the body of the will is up to the testator, the technicalities,

tax implications and legal wording is up to the attorney.

Whatever type of vehicle is used to prepare one's estate, a will is always applicable. It is not an "either, or" situation. Knowing more about the probate process may allow the estate to flow smoothly at death. It is our hope that this text has offered some new information along with some useful suggestions. After all, each of us will need to deal with this topic in our personal lives as well as in our professional lives.