The Essential Executor's Handbook: A Quick and Handy Resource for Dealing With Wills, Trusts, Benefits, and Probate (2016)
The Lawyer: Courts, Contracts, and Crisis
Everyone must deal with the law. That is especially true for people in business. The accountant is schooled in tax law, the realtor is schooled in contract law, and bankers and brokers swim in a sea of legal regulations. But while law governs the business of accountants, realtors, bankers, and brokers, for lawyers, the law is their business. Regardless of specialty, the lawyer is schooled in every field of law. As a result, one of the most important roles for the lawyer in settling an estate is to coordinate the rest of the team. Without a coordinated effort, the executor’s job becomes chaotic.
For example, a contractor cannot begin repairs on a home until the auctioneer and the junk man have completely emptied the home. The realtor cannot list the home for sale until the contractor has made it attractive and livable once more. And the accountant cannot calculate the capital gain or loss until the property has been sold. Watching over all of this activity is the lawyer, as if conducting a symphony. But then, of course, there are jobs that are purely legal in nature and those are the topics of this chapter. Before we begin, however, it would be best to start with some legal definitions.
Probate asset—any asset that the decedent died owning in his or her name alone and without a beneficiary.
Executor—a court-appointed individual who manages the probate assets.
Administrator—same job as executor when there is no will.
Will—a legal document that selects an executor and instructs the executor on how and to whom the probate assets are to be distributed.
Heirs at law—individuals who are entitled to the probate assets if there is no will.
Probate (or probate administration)—A court proceeding designed to help the executor get control of the probate assets and then oversee his actions.
Surety—the guarantee of a bondsman that, should the executor abscond with the probate assets, the bondsman will restore the value of the stolen assets.
Living trust—an agreement between a settlor and one or more financial institutions that provides that neither conservatorship nor probate will be necessary after the settlor becomes disabled or dies.
Settlor—one who establishes a living trust.
Trustee—one who manages the assets held in a living trust.
Conservatorship—a court proceeding, similar to probate, designed to help a conservator get control of a disabled person’s assets and then oversee the conservator’s actions.
Now that you have a basic understanding of the terminology, let us proceed to your selection of a lawyer. A more detailed Glossary is included at the end of this book.
Finding a Lawyer
Although lawyers are schooled in all areas of the law, the law has become so complex that the attorney who does it all has all but gone extinct. For professional, practical, and liability reasons, almost all lawyers now limit their practices to just a few fields of law. To settle an estate, you want a lawyer who specializes in probate, estate planning, and death taxation. It would also be nice if the lawyer has a background in accounting.
The usual way to find a lawyer is by referral. Referrals from your accountant, banker, or broker are preferable to referrals from family or friends unless your family or friends are accountants, bankers, or brokers. The problem with people who don’t work with lawyers on a regular basis is that they don’t appreciate the infinite permutations of legal cases. No two are alike. So advice like, “Yeah, my Aunt Beatrice died last year and her family lawyer took care of it. No problem,” is, in fact, useless. For all you know, Aunt Beatrice may well have died destitute so there was nothing to settle while her family lawyer hasn’t been in active practice for 20 years. If all else fails, you can always get a referral from the State Bar Referral Service. Every state has a bar organization that every lawyer in that state must join. The state bar knows what they do and how long they’ve been doing it.
Most attorneys have four goals for the first meeting: (1) gather information about the decedent, (2) gather information about the decedent’s assets, (3) gather information about the beneficiaries named in the will and trust as well as information about the heirs at law, and (4) gather information on you, the executor/trustee. So, you will need to come prepared.
First, be sure that you bring at least two original death certificates as well as the original will and any codicils (i.e., amendments) to the will. The death certificate will give the lawyer most of the information he or she needs regarding the decedent. The will allows the lawyer to see if there are any obvious problems such as a will that is improperly signed, fails to name an executor, or is not properly witnessed or notarized.
You should also bring an informal financial statement that lists all of the decedent’s assets, including bank accounts, retirement accounts, life insurance, real estate, investment accounts, debt information (i.e., mortgages, credit cards), and vehicles. The financial statement should also indicate how the asset was held: decedent’s name alone, joint with another individual, or in trust. If the asset names a beneficiary (e.g., life insurance or retirement account), you need to know the name and address of the beneficiary as well as any relationship to the decedent. As for knick-knack assets, you probably only need to provide those items that the decedent had specifically insured (i.e., an engagement ring). If you are unsure how to do any of this, you can gather up the decedent’s most recent statements (e.g., bank statements, broker statements, real estate tax bills) and bring them to the lawyer instead.
You will also need to provide the name, address, and relationship of each beneficiary named in the will (if there is a will) and in the trust (if there is a trust). If the decedent had neither a will nor a trust, you will need to provide this information about the decedent’s spouse or children. In the absence of a spouse or children, the lawyer will walk you through the potential list of relatives who stand to inherit. And it is a long list.
Of course, if you are the executor, administrator, or the trustee, you will need to provide information on yourself. Most lawyers will take your word without checking your driver’s license, passport, or birth certificate. If you don’t provide the lawyer with accurate information, you will only be creating problems for yourself.
Many times at the first meeting, the lawyer will also suggest professionals who can make up the rest of your team. Lawyers are prohibited from taking money for such referrals, and most professionals are prohibited from paying for them. So you can be confident that, in most cases, the individuals or companies that the lawyer recommends are actually talented, experienced, and honest, and that the lawyer has worked with all of them in the past. And having a team that has worked together in the past will greatly expedite the whole process.
Finally, many attorneys will then schedule your probate appointment. On the date of your probate appointment, your lawyer will accompany you to the probate court where you will be sworn in as executor or administrator.
Not to put too fine a point on it but probate exists for only one reason and that is to protect financial institutions. As I mentioned in Chapter 1, financial institutions such as banks or brokerages face a potential swarm of litigation if they simply give you the decedent’s money. However, the law provides that if the county or city court “qualifies” you as executor, the financial institution is absolved of all liability regardless of your nefarious plans or deeds. It then becomes the court’s responsibility to keep an eye on you. How closely they watch you depends largely on demographics. If the county or city has a large, wealthy population, you are going to have to account for every penny that crosses your palm and account for those pennies in a timely fashion (i.e., deadlines). Failure to account or to do so in a timely fashion could result in jail time. On the other hand, if you reduce the population or make them poorer, the process becomes incrementally less formal. For example, I once had a case in a rural county of West Virginia. After they qualified my client as executor, we never heard from the court again.
But let us assume that the decedent died as a resident of a populous, wealthy county and that nobody is going to go easy on you. We will call it Difficult County. In that case, the probate process follows very clear steps and tolerance is at an absolute minimum. The terminology I use here was created for Virginia but, regardless of what they are called in your state, the steps are the same.
As you may have surmised, the first step in the probate process is called Qualification. You and your lawyer appear before a court clerk and you are asked for the death certificate. Then you will be asked for the original will and any original codicils (i.e., amendments to the will). Then the questions begin. Who are the decedent’s heirs-at-law? What is the combined value of the probate assets? In some states, the clerk will ask you for both the combined value of the real estate as well as the combined value of the rest of the probate assets. Are the real estate values based on assessment or appraisal? Your lawyer will field all of these questions for you because, in most states, the clerk is not permitted to help you. For example, if you don’t know what an heir-at-law is, the clerk will probably tell you to retain a lawyer and come back. The clerk is not just being difficult. Rather, to answer your question puts the clerk’s job in jeopardy. Why? Because the clerk is not a lawyer and explaining a simple term for you is considered rendering legal advice and, thus, practicing law without a license. Crazy, huh? I guarantee you that the clerk of that small West Virginia county would have answered your question and not given it a second thought. But we are in a Difficult County here.
Let me give you an idea of how bad it can get in Difficult County. Many years ago, a man came to see me whose parents had died in very quick succession. The father had a will, but it contained a very problematic provision. It said that the estate was to pass to his wife unless she failed to survive him by 30 days. The wife’s survived her husband by 31 days. I realized that we would have to go through the entire probate process for the father’s estate to pass the probate assets to the dead wife. Then we would have to probate her estate in order to pass those same assets to the children. Since the father had all of the assets and his wife had none, the two estates were identical. I believed that probating the exact same estate twice would be an absurd exercise. So I went to see the fellow who oversaw all probate operations for that county. I told him that I had a case that, according to a strict reading of the law, was going to require the client to pay twice for the exact same work and that it would be an inefficient use of both his people’s time as well as my people’s time. I proposed that we simply combine the two cases and leave it at that. He pondered this for a moment and then said to me, “David that makes a lot of sense. But, no. I have never been sued. I am never going to be sued. In this county, we do things by the book.” The matter took seven years to complete. In that time, the man who came to see me died. He had been the executor, so a new executor had to be qualified. Also, the youngest child called our office every day asking simply, “Where’s my money?” I suggested he speak to the county official who had, thus far, never been sued.
After your lawyer has gotten you through the qualification process, you are sworn in as the executor. If there was no will, you will be sworn in as the administrator; same job, different title. The clerk will then give you certificates that proclaim you are the executor or administrator. You will provide these certificates to each and every financial intuition that requests them. In theory, only institutions holding probate assets need them, but I have been asked for the certificate by institutions that most certainly do not require them, such as a bank holding a trust account. Accordingly, your lawyer will probably advise you to get more certificates than it would appear that you actually need. But then your lawyer has learned that, for your average bank, broker, or insurance company employees, the law is simply what their manager tells them it is. Any attempt at explaining otherwise will fall on deaf ears.
The next step is to get an Employer Identification Number (or EIN) from the Internal Revenue Service. This number replaces the decedent’s Social Security Number and is provided to all financial institutions holding probate assets. In years past, it took six months for the IRS to issue an EIN. Now it takes less than five minutes online. Either the lawyer or the accountant will obtain the number for you. If they have worked together before, each will know whose task that is.
Your executor certificate and EIN in hand, you then proceed to open a checking account for the probate estate. As a rule, a bank will not simply convert the decedent’s checking into probate checking. A new account must be opened and the old account closed.
In Difficult County, you will have a short time to notify all of the beneficiaries of the will and all of the heirs-at-law that you have been sworn in as executor and that the probate case has begun. Typically, you have 30 to 60 days. Your lawyer will prepare and mail these formal notices. A few months after that you will have to provide the court with an inventory that describes all of the probate assets in detail and provides their respective values. Your lawyer will be preparing this for you as well.
Each year or two thereafter (depending on your state), Difficult County will expect to see a formal accounting of your progress. Your lawyer will prepare the accounts for you, which is why I recommend your lawyer have an accounting background. The account format is not “accounting” in the professional use of the word, but it is close enough to make an accounting background useful. When the last account is filed and you have demonstrated to the court that all of the probate assets have been properly disbursed and distributed, the probate process ends. In most cases, however, your job is not yet done. If there was a living trust, for example, you as executor have transferred the probate assets to you as trustee and your work continues.
While your lawyer will help you with a myriad of minor problems that arise, there are two legal functions that deserve special mention here. Your lawyer will help reduce the decedent’s debts as well as mitigate family disputes.
Let us begin with a discussion of creditors. In every state, creditors have a hierarchy. The top dogs are those lenders who hold pledged security (i.e., mortgage companies) and lien holders (i.e., the IRS). At the bottom of the heap are the general creditors who own nothing more than the decedent’s long-ago promise to pay them back. It is rare that your lawyer can reduce the amount owed on a mortgage. It is only slightly less difficult to negotiate the amount of a lien. On the other hand, general creditors accept their lowly standing as a cost of doing business. They are well aware that, after the mortgages and liens are paid, there may be nothing left for them. The lawyer will wait until the general creditor files its claim with the estate and then call them to discuss a settlement. Some lawyers wait for the creditor to use a collection agency knowing that the debt collector is working many, many cases and they are willing to reduce the amount owed in exchange for immediate payment. It is not uncommon for a collection agency to accept as little as 50% to settle the claim.
The question of morality is relevant here. Many executors believe that, if the decedent owed a debt, then it is only right that the debt be paid in full. I not only respect that point of view, I actually agree with it. But I am simply the lawyer. My job does not involve dispensing my opinion as to what is moral—only what is legal. The lawyer’s job is to tell you your options and then do whatever you decide. This is one area where you are on your own.
And speaking of being on your own, never is that as true as in your dealings with your family. In particular, siblings are a huge source of stress and conflict. If you were selected to be the executor, it is most likely because you are viewed as the hard-working, responsible one. However, allowing you to do all the work does not mean that your siblings actually trust you—or each other for that matter. After you have said your goodbyes to your mother or father, brace yourself. You may be in for one or more storms headed your way.
The first possible tempest involves the decedent’s personal effects. Siblings will often lay claim to their parent’s personal effects with comments such as, “Dad promised me his Rolex,” or “Mom promised me all of her jewelry,” or “As we all know, I was told that I was to get all of the cash in the safe.” I know of one case where an enterprising young man produced a handwritten note that listed each and every item he was promised. The note was not dated and signed simply, “DAD.” Curiously, the note was not in the father’s handwriting. The son explained that his father had dictated the note to him. Needless to say, your job, as executor, is to ignore all of it. If something was promised then it should have been in the will. If not in the will, then it should at least appear on a typed list indicating who gets what and bearing the signatures of all of the children. And to prevent the unauthorized removal of any personal property, you have a duty to secure the residence. This is not just a precaution regarding siblings but just about anyone who wishes to take what you have been given to protect. Call a locksmith and change the locks. Put monitored alarms on every door and window. Technically, all of the personal effects now belong to you and will remain in your care until a reasonable method of distribution can be determined.
Probably the best way of distributing the personal effects is to ask the siblings what they want. Sometimes, there is no conflict. Your lawyer would prepare what is known as a Beneficiaries Agreement, which describes the distribution of the items. You and your siblings then sign and notarize the agreement. Problem solved. But what if there is a conflict? Then it is up to you to decide. And your siblings need to be made aware of that. Your lawyer would address a letter to each of them on your behalf explaining that you have the right to appraise and sell all of the personal effects and that any item determined to be financially valueless, regardless of its sentimental value (e.g., photographs), will be hauled off to the dump. This may cool the conflict.
Another storm brewing on the horizon involves the make-up of each share. One child may want the home while another may want the investments. Provided you distribute shares of proper value, regardless of what comprises each share, you have done your job. But again, in the interest of family peace, it is best to ask what each sibling wants and then use a Beneficiaries Agreement to seal the deal. In settling my parents’ estates, there were multiple agreements. But again, what if it is not possible to distribute the shares the way your siblings desire? Say, for example, your brother wants the house but he is only entitled to a third of the estate. If the house comprises half of the estate and your brother cannot finance the difference, you cannot do as he asks. If you are faced with an impasse, you can sell all of the estate—real estate, investments, personal effects, and so on—and just write checks. In all but the rarest cases, you have that right. Making your siblings aware of this may help negotiations.
These are only the most common tasks that your lawyer will undertake for you. There are far less common problems that your lawyer will tackle for you as well—everything from defending against a will contest to reviewing mineral rights contracts. Every case is different in some way. And, unfortunately, some cases are so different that they become nightmares unlike anything you could have imagined. But your lawyer has your back because your lawyer represents only you—not the estate and most certainly not the beneficiaries. So, when your job makes it seem like you’re living in the Wild West with bullets and arrows whizzing by your ears, just think of your lawyer as a hired gun. Never hesitate to call when trouble is a-brewing.
Things to Do
1. Interview and select your attorney.
2. Provide your attorney with the original will and at least two original death certificates, as well as copies of each of the following: trust, recent bank and investment account statements, real estate deeds, vehicle titles, and life insurance policies.
3. Have your attorney schedule a time to qualify you as the executor.
4. Promptly provide anything else your attorney requires.a