The Essential Executor's Handbook: A Quick and Handy Resource for Dealing With Wills, Trusts, Benefits, and Probate (2016)
Know Your Bureaucrat
Technically, a bureaucrat is any government official. But, in its more colloquial or pejorative use, it refers to any inflexible, low-level government official who extolls the rules over public service. So, technically, the president of the United States is a bureaucrat. But in practice, the term is more likely to refer to the grim-looking person behind the counter at the Department of Motor Vehicles; the one who returns your registration application because your Social Security number is missing a dash. For our purposes, however, it means any person, in any organization, business, or government office, who processes paper. They may, in fact, be the sourpuss at the DMV or they may be the pleasant and helpful branch manager at your local bank. Either way, the simple fact is that you need these people. So be nice.
Internal Revenue Service
Nothing strikes fear into the hearts of man and woman as the acronym “IRS.” Quite possibly the most powerful and influential bill collector on the planet, the IRS benefits from a reputation that is largely undeserved. That is because not all IRS agents are the same, nor do they even share the same job. The IRS is, in fact, comprised of numerous sub-offices; each is staffed by a different sort of bureaucrat. For our purposes, we are going to look at the big four: Processing, Audit, Collection, and Criminal.
It is unlikely that you will ever have official contact with someone who works for Processing. These are the folk who actually process and oversee most of the paper submitted to the Internal Revenue Service in the form of income tax returns. It is a grueling and thankless task. In one case, which the commissioner of the Internal Revenue Service vehemently denied, the staff at the Philadelphia processing center claimed that they were so overwhelmed that they had started hiding tax returns in the suspended ceilings just so that they could claim that they had completed their workload. I am from Philadelphia and I know Philadelphians. If you’re like me, the story is very believable. In any case, there is no direct contact between taxpayer and processor. These bureaucrats toil in anonymity and are no threat to anyone.
Auditors, on the other hand, are the IRS employees you are most likely to meet face to face. Their job, in a nutshell, is to ensure that what you have entered on your tax return is true, accurate, and in compliance with the Internal Revenue Code and Treasury Regulations. Contrary to popular perception, however, it has been my experience that most are not “out to get you.” If you are selected for audit, the audit may be nothing more than a letter requesting additional information about your tax return. And, then again, you may actually be asked to appear at a local IRS office for a more thorough review. Such an audit can be scary but, in all my years of accompanying clients to these “in-person audits,” I have never once met with an auditor who seemed angry, aggressive, or unfair. The only problem with auditors, in my opinion, is that most are poorly trained and don’t seem to have enough knowledge of the law to do their jobs correctly. More than once, I have had to take a case to the Internal Revenue Service’s Appeals Office just so that I could work with someone who was better educated. My point is that, unless you have been dishonest, an audit is nothing to fear.
And then there are the Collection officers. A Collection officer’s job is to collect taxes by any means possible. What kind of people are they? How shall I put this? In my experience, Collection officers are a curious combination of Barney Fife and Mad Max. That is to say that they are well aware that they have the power to seize almost anything you own and they find that stimulating. Their knowledge of tax law is poor to say the least. But that doesn’t seem to bother them. They simply don’t care; nor are they required to. However, before breaking into a cold sweat at the prospect of losing the estate you have been dutifully shepherding, there are two points to keep in mind.
First, if you are in the presence of a Collection officer it is either because you have refused to pay your taxes or, more likely, because you have ignored the auditor’s request for information. When you ignore an IRS request for information, the government is well within its rights to assess a tax against you based on the information that is available. And once a tax is assessed against you, the case is turned over to a Collection officer.
Second, even though you have been negligent in dealing with the IRS, you can still seek a court injunction to stop the Collection officer’s attempts to seize property. This involves hiring an attorney to go to court for you. Of course, for your attorney to prevail, the Collection officer’s actions must have been unlawful (which is certainly not outside the realm of possibility) and the judge must be fair (not always the case), but still, going to court is better than submissively baring your throat. My point is that you always have options. On the other hand, if you are doing your job as executor, it should never get to this point.
The last IRS bureaucrat who may become involved with your decedent’s estate is an agent of the Criminal Enforcement Division. These are the agents who carry guns. They are, essentially, the Internal Revenue Service police force. Most taxpayers will only meet with one or more of these agents during a seizure of home or business. Surprisingly, they are not there to seize anything (that is reserved for the jubilant Collection Officers). No, they are there to keep the peace. In my three decades of practice, I have only met one Criminal Enforcement agent and, quite frankly, I found her charming. The only other time you are likely meet a Criminal Enforcement agent is if you have knowingly defrauded the IRS. Don’t do that.
State Taxing Authority
It should come as no surprise that tax collection at the state level mirrors tax collection at the federal level. Every state has an agency comparable to the Internal Revenue Service. Most are not nearly as sophisticated, well-funded, or well-manned as the Internal Revenue Service and most are not nearly as aggressive in exercising their mission. Nevertheless, your accountant should be just as well-versed in dealing with state taxing authorities as he is in dealing with the IRS. If not, you may just find yourself fighting a two-front war.
Department of Motor Vehicles
Here’s your problem. Your decedent owned a car and, to make matters worse, he owned it in his name alone. Why is this a problem? Well, while most states provide many online services, transferring a title to a vehicle to someone else usually requires a trip to the Department of Motor Vehicles. In addition to the notorious wait times at most DMV offices, you will need to know, in advance, whether this DMV office is going to require a probate certificate.
Some states have enacted legislation that allows someone to take a title to a car without formal probate procedures. Virginia, for example, has had one such law on its books for decades. It says simply that vehicles can be re-titled to the decedent’s next of kin without probate. Sounds straightforward, right? It is. The problem is that the vast majority of DMV personnel in Virginia have: (1) never heard of the law, (2) don’t care to familiarize themselves with the law, and (3) don’t know what a next of kin is. And why should they? As they are quick to remind you, they are not lawyers. For them, the law is whatever their manager says it is. And often, their manager doesn’t know the law either.
It seems excessive to enter full-blown probate just to transfer a title to a 1972 Plymouth Duster. So much so that you may be tempted to remove the license plates, tear off the VIN, and abandon the clunker on the side of the road. In fact, executors have been suggesting that to me for years. But, well, no. Don’t abandon hope quite yet. Many states have a form of probate that doesn’t require all of those pesky inventories and accountings and other filings that stretch a simple job into a year or more. The law in those states provides that probate estates worth less than a given value (e.g., $50,000) may use an affidavit in which the affiant claims, under oath (i.e., notarized), that he or she is entitled to the car. All the executor has to do is record the will with the local probate office. I find that DMV personnel are familiar with these laws.
So why do the employees of the DMV recognize one law and not another? I can’t be certain, but I suspect it has something to do with the fact that one law doesn’t require a piece of paper and the other does. And, in any bureaucracy, it really is all about the paper. Which means that if your state doesn’t recognize either type of law, the paper you are going to need is a probate certificate and that means full-blown probate—for a car.
Which brings me back to your original dilemma: How do you know what your DMV requires? Of course, you can simply call them and ask but that is a little like calling the IRS. You will get an answer but there is a really good chance that it won’t be the right one. And if you think that you will get any traction with the old argument, “But I called!” trust me, you won’t. So here is what you do: Take the car title as well as your prospective new owner to the DMV and wait your turn. One way or another, you are going to find out what they want. If no other paperwork is required, great. If they use the affidavit system, they usually have a form you can fill out there and then. If probate is your only option, you’re just going to have to suck it up. But be nice. Remember that, for a bureaucrat, tantrums are never persuasive and you may well have to deal with this same person on your return. Don’t make a bad situation worse.
It’s also useful to understand that, just like people, DMV offices are not created the same. Many years ago, I had a client who would visit all of the local DMV offices on a weekly basis, just to see which had the shortest lines and the most helpful employees. (He had a lot of time on his hands.) And then he would call me and give me his findings for the week. Given this insider knowledge, I could advise my executors accordingly. So, if your decedent lived somewhere with numerous DMV offices, ask around. Get a referral, so to speak.
Finally, it bears mentioning that, if the decedent owned a vehicle with another person, and that person is still living, you’re off the hook. It is the responsibility of the surviving owner to visit the DMV and remove the decedent’s name from the title. (This usually requires little more than a death certificate.) The vehicle is part of the Contract Estate and may have to be reported on the Estate Tax Return as joint property but that is the extent of your involvement. Having said this, it would be prudent of you to examine the title. The following words must appear for this to work: “Joint With Right of Survivorship” or the abbreviation, “JWROS.” If the title is silent in this regard, you may be required to probate half a car. Don’t laugh. I had just such a case.
Let us assume for a moment that your decedent had assets that must be probated (i.e., assets owned in the decedent’s name alone without a beneficiary). Most probate offices are physically located in the county’s court of record (the high court of the county). This building also usually houses the land records office. You will probably need their assistance as well. Chances are that you will not need an appointment to visit land records, but you almost always need an appointment to begin the probate process. You attorney should make the appointment for you.
But first things first. Almost all court buildings these days employee security guards and metal detectors at each entrance. Unless you are an attorney who has been pre-cleared by that county’s security officials, you are going to have to get in line with everyone else and wait to be screened. The experience is not unlike security checkpoints at the airport. And like airport security, you will need to empty your pockets and place the contents into those little plastic bowls for inspection. Also like airport security, arguing with the officer will not make your day go any better. In addition, many courts do not permit you to carry a cell phone into the building. Some will hold it for you until you are ready to leave but others will not, forcing you to trek back to your car and leave it there. In short, the day you visit the court, for whatever reason, just leave behind any and all metal objects, cell phones, and, of course, weapons (do I really need to tell you this?). Then just be nice.
Once you have located the probate office, your attorney will have to make your presence known. While some of the more populous counties have a receptionist and a sign-in procedure, others counties require that you waive your arms and repeat “excuse me” until someone actually notices you. Once, in a very rural county, after much arm waiving, I discovered that the probate office was actually a broom closet behind the main desk and that the only probate clerk was on her cigarette break. To borrow a rule from the game of golf, you play them as they lay.
The probate clerk’s job is to “qualify” you as the executor of the estate. The clerk will need to see an original death certificate and, if there is one, the original will. You will be asked the names and locations of your decedent’s next of kin (spouse, children, etc.), and you will be asked about the types and values of the probate assets (securities, cash accounts, etc.). Your attorney should have obtained from you both the documents and the needed information prior to your visit. You will then be required to give your personal bond (i.e., a promise that if any assets turn up missing on your watch, you will replace them). In some instances (e.g., you are from out of state), you may be required to purchase “surety” from a local bondsman (i.e., insurance to protect the estate from your presumably nefarious nature). Once all the paperwork is completed, you will be asked to raise your right hand and swear that you will fulfill your duties as executor. At this point, your job has just begun. However, in the vast majority of cases, you will not be seeing the probate clerk ever again.
While you are at the courthouse, your attorney may need to drop by the land records office. Land records is the repository of every deed for every piece of property in the county. If your decedent owned real estate, your attorney will need to obtain a copy of the deed so that a new one can be prepared, transferring the property to a buyer or to a beneficiary. Obtaining a deed is a simple matter. Your attorney need only ask for the last deed in the chain of title for a particular address. The clerk then prints out the copy from a computer database (although some less affluent counties still rely on using the original deed and a copy machine).
Your interaction with the land records clerk will be brief and nothing like the hour you just spent with the probate clerk. But, on occasion, it can actually be entertaining. Decades ago, when I was a very young lawyer, I went to the land records office in a very rural Virginia county. When I walked in, I saw long shelves of books on one side of the room and a very long counter on the other side. Near me but behind the counter was an elderly, gray-haired woman. We were the only persons in the room. She looked at me and said, “May I help you, young man?” Not certain if I was in the right place, I replied, “Deeds?” She pointed to the shelves of books containing all of the county’s deeds. I said, “No. I need to record a deed.” She pointed to the far end of the counter. So I walked to the far end of the counter. And so did she. When we both arrived there, she turned toward me, looked me in the eye, and said, “May I help you, young man?” It was a surreal moment. To this day, I don’t know if she was “funnin” me, suffering short-term memory loss, or more likely I think, just being a bureaucrat.
The difference between a government bureaucrat and a private one can be subtle or profound. Nowhere is this premise better illustrated than with life insurance companies. When you attempt to make a claim for the decedent’s life insurance, you may be tempted to call the company’s 800 number. However, while the person who answers the 800 number is ostensibly there to help you, they are frequently not all that helpful. To be fair, these people have a job that requires them to take countless calls from confused, desperate, and often belligerent customers on a daily basis. And that can take its toll. If they are very, very good at their job, they maintain a pleasant and professional demeanor as they assist you with your questions and claims. My experience, however, is that they often seem unable to assist you and become belligerent and dismissive when confronted with your frustration (e.g., “Well, I’m sorry, sir, but there is simply nothing I can do”). And that is really not all that surprising. People need an incentive to do their jobs well. So the rule of thumb is that, rather than call the 800 number, you simply locate your decedent’s agent.
An insurance agent is, in fact, an independent contractor and not an employee of the insurance company. The agent’s business deal with the insurance company is that if he successfully signs you up for a life insurance policy, he gets a part of the premiums you pay. A good insurance salesman can make a rather tidy living, receiving what amounts to royalties on policies sold to customers years and years ago, but only so long as the customers continue to pay the premiums. As a result, an insurance agent has a vested interest in your happiness in a way that someone paid by the hour to answer the phone does not. So, whenever you discover that your decedent had life insurance, the rule of thumb is to first determine if there is an agent, then dispose of the 800 number, and then call the agent.
All of the major insurance companies contract with agents to sell their products. However, it is possible that your decedent bought life insurance after viewing a late-night TV commercial. You know the kind. The one with such breathless pitches as, “You can get 10, 20 . . . up to 50,000 dollars in terms life insurance with no medical exam! And your premiums will never go up!” More about such insurance in a later chapter, but suffice to say there is no agent. You will be calling an 800 number.
You may also discover that your decedent had insurance through work, even if the decedent had retired long ago. If the employment was in the private sector, you simply need to call the employer. If it is a large employer (e.g., IBM, Microsoft) you will be put in touch with a department known as Human Resources or the like. They will then walk you through the claims process. If your decedent worked for the state or local government, you will be handed off to a similar department. But if your decedent worked for the federal government, you will need to call the Office of Personal Management, or OPM. If that is the case, you will be entering a whole new level of bureaucracy and you may need the assistance of your attorney.
At the moment of death, your decedent’s taxable entity disappeared. Or, to put it another way, the decedent’s final income tax return will be for a year that began on January 1 and ended on the date of death. And that is because the Social Security number was retired like an old football jersey—never to be used by anyone ever again. In its place, up to two new taxable entities sprang into existence: the Probate Estate and the Trust Estate.
The Probate Estate, as you may recall, is any asset that the decedent owned in his own name alone with no beneficiary named. If your decedent had probate assets, then the accumulation of those assets is a taxable entity and one for which you will have to file annual income tax returns until the Probate Estate has been distributed. As a taxable entity, it is going to require an Employer Identification Number (EIN).
The Trust Estate is the accumulation of assets held in the name of the decedent’s previously revocable living trust. But since he was the only person who could have revoked the trust, the trust is now irrevocable and irrevocable trusts are also taxable entities requiring annual income tax return filings. It is going to require an EIN as well.
What does all of this have to do with the banker? Well, in short, the Probate Estate is going to require at least a checking account and the bank will not be able to open that account without an EIN. The same is true for any bank accounts that were held in the name of the living trust. They will all have to be closed and new bank accounts opened with the trust’s new EIN. So, before dropping by your decedent’s bank or credit union, you are going to have to go the Internal Revenue Service website to obtain these numbers. Getting the EIN numbers is usually the accountant’s job, but if you are pressed for time or you have not as yet hired an accountant, simply enter www.irs.gov, click the tab “Apply for an Employer ID Number,” and answer the questions. This is going to take you two days because the IRS has a policy of only issuing one EIN per applicant per day.
Even though you now have your EINs in hand, creating new accounts under the name of the Probate Estate or the Trust Estate is going to be a fair amount of work and it is essential that you develop a personal rapport with a banker—not the walk-up window teller, not the greeter who asks how they may help you today, but a person with a desk. Ideally, that should be the branch manager.
When my parents died in 2010, all of their bank accounts were with Bank of America. I had to open their Probate Estates in Montgomery County, Pennsylvania, because that was their county of residence. I, however, live in Virginia. So when I returned home and obtained EINs for their Probate Estates, I paid a visit to the largest branch of Bank of America in my neighborhood. There I asked to talk to the branch manager. And, even though my parents had all of their accounts with Bank of America, the fact that their probate cases were in Philadelphia made for some bureaucratic wrangling that required and hour and a half of phone calls between bank offices and a great deal of paper shuffling before they were finally able to establish the probate checking accounts. The moral of the story is this: Find the bank employee with the biggest office or you are going to be there all day.
When laymen use the term, broker, they are usually referring to one of two things. Either they are referring to the individual who places orders to buy and sell stock for them, commonly referred to as a stock broker, or they are referring to the brokerage that is the company that employs the stock broker (e.g., Merrill Lynch). While your banker is helpful in the transition of accounts from decedent’s name to entity name (i.e., Probate Estate or Trust Estate), the broker is going to keep you out of trouble.
Every executor and every trustee is known as a fiduciary—a title that comes with the highest level of legal obligation known to the law. You are absolutely, totally, 100% responsible for the preservation and investment of your estate. Mess up and violate your fiduciary duty—intentionally or not—you are looking at removal, lawsuits and, possibly, jail time. When cash, stocks, and bonds comprise a large portion of your estate, you have a duty to invest them as would “a prudent person.” This Prudent Person Standard means you can be neither too conservative (e.g., converting the stocks and bonds into cash and hiding the money in a mattress) nor too aggressive (e.g., offshore drilling ventures). The balance falls in the middle, and a good broker will know the difference. Your job is to find a good broker.
Quick! How do you know that the home you are planning to sell hasn’t already been sold to someone else? How can you be sure that it doesn’t sit on land belonging to a Native American tribe? How can you be sure that it doesn’t have a government easement the size of Montana running right down the middle of it? You know because of the tireless work of title companies. A title company’s job is to ensure us that the property we are buying or selling does not in some way, great or small, belong to someone else. This, despite the fact that, in the vast majority of cases, the home and the land it is sitting on does not belong to anyone other than the guy who is selling it. Still, title companies look for interests that other people may have such as a disputed border with a neighbor or perhaps oil under your land that has been leased to an oil company. These interests become what is known as “clouds on the title.” Potentially, they can cause you grave problems if you proceed to settlement being completely unaware of the cloud. And the bank giving you the mortgage to buy the house is keenly aware of it; okay, actually, it is their lawyers who are keenly aware of it. Nevertheless, however overblown the danger may be, a bank will insist on the services of the title company as a condition of providing the mortgage money. For you, the executor or trustee trying to sell the house, this will mean extra costs for either you or your buyer. And it will almost always mean delays.
Essentially, title are comprised of three kinds of employees: the title searcher, the attorney, and the settlement agent. The title searcher examines the history of ownership using the county’s Office of Land Records. If an Indian burial ground is revealed, it will appear in the title examination. The lawyer reviews the deeds, forming what is called the “chain of title” (usually over the past 60 years) and looks for flaws in those documents. Of course, nobody is perfect and either the title searcher or the lawyer may make a mistake so, in an over-abundance of caution, your buyer will be offered a Title Insurance Policy; and the bank will insist on its purchase. And, finally, when every obsessive-compulsive impulse and fear has been assuaged, the settlement agent will oversee the signing of the deed, the mortgage, and all the related documents. As the Brits would say, “It’s all stuff and nonsense,” but it is the accepted procedure nevertheless. So you are just going to have to grin and bear it.
Perhaps you have bought and sold a home or two in your lifetime and were completely oblivious to the fact that a title company had even been involved. So, reading this, you are thinking “Why is this guy going on such a rant about it?” Ah, the difference my newly minted executor/trustee is that you never sold a home as a fiduciary before. The power of individuals to sell a home is fairly well established and respected, even among title companies. But they don’t see nearly as many sales by fiduciaries and that makes all the difference.
Let me tell you a cautionary tale. At the beginning of my career, the statutes in my state made it very clear that a trustee had the power to sell real estate held in the name of the trust. To ensure that title companies knew this, I referenced the statute in the trust document. But that was not good enough. They did not want to have to read the statute; I had to state, unambiguously in the trust document, that the trustee had the power to sell trust real estate. But after a time, that was not enough either. I was told that the deed that conveyed the real estate to the trust must also contain a statement that the trustee had the power to sell that real estate at a later time. Being young and naïve, I protested that the deed did not establish the trustee’s powers. It was the trust document that did that. I said, “The deed can say that the trustee is the queen of England; that doesn’t make it so.” But they insisted and I relented. After that, came the insistence that we amend the trust document to contain language that the title company’s attorney liked better than mine. After that, I was told that I had to vow that the trustee had the power to sell trust real estate in something they called an “opinion letter.” And, most recently, I am asked to simply remove the property from the trust before it is even listed for sale. In short, title companies are the poster child for obsessive-compulsive disorder. But that’s who they are, and there is absolutely nothing you can do about it. If a title issue comes up the day before closing, let your attorney deal with it. Just know that closing is never tomorrow.
Up until this chapter, the theme of this book has been teamwork. You select the people who can do the work of settling your decedent’s estates and you just oversee the process. But I would be remiss had I not explained that there are people involved in this process that you did not, and probably would not, hire. Bureaucrats, both government and private, make their living serving an overly complex, arbitrary, inefficient, rule-driven, paper-driven industry. If there is an exception to this rule, it would be the bankers and brokers. In every other instance, you must accept that dealing with a bureaucrat will rarely go smoothly. Let your team handle those issues and, just remember, be nice.
Things to Do
1. If you haven’t already done so, provide the members of your team with the information necessary to complete the relevant paperwork (e.g., tax statements, deeds, insurance claim forms).
2. Follow up to ensure that all bureaucratic paperwork has been filed and received, and that the requested actions have been taken.
3. Be nice.