The Essential Executor's Handbook: A Quick and Handy Resource for Dealing With Wills, Trusts, Benefits, and Probate (2016)
The Banker: Keeper of the Cash
As you may recall from Chapter 8, “Know Your Bureaucrat,” a banker can be either a valuable member of your team or simply an unreliable cog in a bureaucratic machine. Although it is tempting to call the 800 number on your decedent’s last bank statement, you are far more likely to get professional and effective help from a real person you can talk to, face to face. So, as I emphasized in that chapter, go to the decedent’s bank and ask to speak to the branch manager. Chat a bit. Get to know each other. If the branch manager seems competent, lay out your problems, questions, and concerns.
If the manager seems utterly clueless and is struggling to hide that fact, it will become apparent no more than 10 minutes into the conversation. If that is the case, you may want to simply state that you are the executor for the estate of one of their customers and you were wondering what you should do next. You don’t have to take notes at this point, or even listen to the answer. You’ve determined that working with this particular bank employee will be counterproductive and you’re just being polite. Then go to another branch, and another after that, until you find someone who is familiar with Probate Estates and makes you feel confident that they can be genuinely helpful. If necessary, go to another bank altogether; funds can always be moved from one bank to another bank.
I don’t mean to be judgmental or condescending but logic dictates that the branch manager is likely to have had far more experience dealing with living customers as opposed to dead ones. Even so, there are many who have seen it all and done it all. This is the person you truly need.
The Estate Checking Account
At a very minimum, the Probate Estate is going to need a checking account to pay for Probate Estate expenses such as court costs, legal fees, and accounting fees. To open a checking account for the Probate Estate, you are going to need an Employer Identification Number (EIN), your decedent’s death certificate, and a small amount of cash (less than $100). If necessary, use your own cash and reimburse yourself later (see Chapter 12). If your banker has done this before, it will be a small matter to set up the account. Once established, you will deposit into that account all of the following:
1. Checks made out to your decedent;
2. Checks made out to your decedent’s estate;
3. Proceeds from the sale of Probate Assets (e.g., real estate, jewelry, securities);
4. Cash that was in your decedent’s possession on the date of death (e.g., in a safe or safe deposit box); and most important
5. Cash contained in any bank accounts that were in the decedent’s name alone. Those accounts must now be closed.
If the will directs the probate assets to a living trust, you will do that later. This is where you start.
Other Kinds of Bank Accounts
In a nutshell, bank accounts all share two traits: interest rate and availability. As a rule, the higher the interest rate, the more restricted the availability. In other words, if you need to access the money on a routine basis, it’s going to cost you. There are essentially four kinds of bank accounts: Checking, Savings, Money Market, and Certificates of Deposit. (In the case of credit unions, there is also something called a Share Account. A Share Account, however, is a minimal account you keep open just so that you can avail yourself of credit union benefits such as low-interest car loans.)
At one time, Checking accounts paid interest on money left in the account. That is not the case anymore. Oh, you may be able to find a Checking account that pays interest but it is, more often than not, just a Money Market account with check-writing privileges. If you write too many checks, the interest disappears; or they may simply convert it to a Checking account.
Savings accounts pay a little more interest (anything is more than nothing). But, again, although you may draw money out of a Savings account, it is supposed to be an occasional thing—if ever at all.
Money Market accounts pay still more interest (though often less than 1% per year). In most cases, Money Market accounts are indistinguishable from Savings accounts. Your money is available to you but the interest rate will decline if you use it like a checking account.
Certificates of Deposit (CDs) are where the action is when it comes to interest rates. Although once considered ridiculously low, a CD that pays 5% is considered to be outrageous nowadays and a find equivalent to striking oil. You are more likely to find these CD rates at small banks. Small banks tend to offer a better rate than the big boys since they don’t have the name recognition to attract new customers. But as I said, the higher the interest rate, the less the availability. In fact, you can’t draw money out of a CD at all. You have the option to close out the CD but, if you do, you will usually forfeit at least the last quarter’s accrued interest.
What you should take away from this is that, as an executor, you really only need two kinds of bank accounts: Checking and CDs. Savings and Money Market accounts simply pay too little interest to justify parking any of the estate’s cash there. Since you have a fiduciary obligation to put the estate assets to work, any cash that you don’t expect to need for administering the estate can be invested in CDs. Cash you need to operate the estate should be in checking.
It should be noted that the line between brokerage houses and banks is gradually blurring. Most large banks now have a securities division. So, instead of calling your stock broker to invest estate money, you can just as easily invest that money with your banker. In some cases, such as Bank of America, the bank actually owns the brokerage (i.e., Merrill Lynch). However, each bank has its own procedures and structure. For example, although Bank of America has its own securities division, my understanding is that it is meant for small investors. A wealthier investor, or a large estate, will probably be more comfortable working with a Merrill Lynch–type brokerage.
The Trust Accounts
Your decedent may also have had trust accounts with the bank. It is far easier for most bankers to deal with trust accounts after a death than to establish a new Probate Estate account. All they need is the trust’s new EIN. Up until your decedent’s date of death, the decedent’s revocable trust tax number was his Social Security number. Now your accountant simply needs to apply for a new EIN. If you don’t have an accountant, just as you did for the Probate Estate, go to www.irs.org and follow the instructions.
This is an important step that many trustees miss. The bank reports interest paid to the trust using whatever tax number they have available. If all they have is the decedent’s Social Security number, that is how they will report interest to the IRS. When you file the decedent’s final tax return, IRS computers will be looking for the interest that now belongs to the trust. At the very least, this will require that the bank issue a revised report to the IRS; and often, the bank is unwilling to do that. The worst-case scenario could be an audit. And that is something that you really do not need.
Since you are a fiduciary, and as I have said, you are held to the highest standard of care, you should never have an estate or trust bank account that is not properly insured. The Federal Deposit Insurance Corporation is an independent agency of the federal government. It is charged with insuring bank customer deposits against loss (e.g., the result of a run on the bank or bank failure). They guarantee the safety of trust and estate accounts up to $250,000 per beneficiary of the trust or the estate. So, for example, let’s say that your decedent’s Probate Estate and your decedent’s Trust Estate both have accounts with Bank of America. The will names the trust as its only beneficiary (one beneficiary) and the trust names four beneficiaries. The sum of the Probate Estate accounts are insured up to $250,000. However, the sum of the trust accounts is insured up to $250,000 per beneficiary or $1,000,000. You must always be aware of these limits. Although it is rare for a bank to fail these day, it’s your skin if your bank does fail and any part of the accounts are uninsured.
Claiming Accounts of the Contract Estate
Remember, the Contract Estate consists, in part, of bank accounts that are either in joint name with a living person or bank accounts that are in your decedent’s name alone but payable on death (POD) to a living beneficiary. Strictly speaking, it is not your job to assist in the claim of these accounts but, since you need their values for purposes of filing the Federal Estate Tax Return, it would be helpful to both you and the claimant to lend assistance. Remember, however, that it is the accounts’ co-owner or beneficiary who is actually making the claim. Unless you are an attorney, every phase of the claim must be by them. So if you need to follow up on the claim, you will probably need to bring the respective party with you when you visit the bank.
In an ideal world, all the bank needs is an original death certificate for the joint owner or the beneficiary (POD) to claim the account in their own name. But this is not an ideal world. Remember, banks are, by their very nature, bureaucracies. You should begin the process by contacting your banker (the one with whom you have established a relationship) and asking what is required for a co-owner or beneficiary to claim the account. (Almost always, there will at least be a claim form to fill out in addition to the death certificate.) Your banker will send these documents (usually by internal courier) to the proper department for processing. And then you wait.
Recently, I represented a young man who was the beneficiary of this father’s checking account. It was not a huge sum—something like $6,000. Since it was such a small amount, I called the bank’s Estate Division and asked for their claim procedure. They e-mailed a claim form to me and instructed me to fax both the completed claim form and the death certificate to a specific fax number. So I did. Two weeks went by and my young client had not received his money. So I dropped by one of the bank’s branches and asked a man with a desk to help me. He contacted the Estate Division and was told that they had no record of the claim. (He rolled his eyes and whispered to me, “Sometimes they shred them.”) Fortunately, I had the original paperwork I had faxed and so the banker scanned it and sent it to them electronically. Four weeks pass and still my young client does not have his check. I located a different banker in the same branch and told him my tale of woe. He submitted the claim for a third time. Four weeks later, my young client finally had his money. Sometimes, the bureaucracy cannot be avoided. Your only option is persistence—making use of your banker to assist you.
Safe Deposit Boxes
It is exceedingly rare for someone to put his safe deposit box in a trust name. It is only slightly less unusual for someone to hold a safe deposit box in joint name. More often than not, the box (which the bank treats just like any other account) is in your decedent’s name alone. So, technically, the contents of the box are part of the Probate Estate. So, you would think that all you would need to do to empty the box is to locate the appropriate bank branch and present your Probate Certificate. Thereafter, you would move the contents of the box to a new safe deposit box under the Probate Estate’s name. And, in an ideal world, that is really all you should have to do. But, like I said, no ideal world here or anywhere to be found.
For example, my parents were residents of Pennsylvania and Pennsylvania has an inheritance tax. When my father passed away, I called the small bank that housed his safe deposit box. I explained to them that I was the executor and that I would like to claim the contents of the box. I was told that, in the Commonwealth of Pennsylvania, I first had to send a letter, by certified mail, to the treasurer of Pennsylvania, located in the capital of Harrisburg, which was more than a hundred miles away. In that letter, I had to inform the treasurer that I would be appearing at that particular bank, on a particular date, at a particular time, to empty the box, just in case they wanted to send a state representative to inventory the contents. I was then to bring a certified copy of the letter to the bank, on the particular date, at the particular time, and present it to a banker there. When the hour arrived, then and only then, would I be permitted to view and remove the contents of the safe deposit box. No representative ever appeared and the box was empty. This is why lawyers charge by the hour.
On the brighter side. The branch manager, seeing my frustration, took pity on me and waived the $75 rental fee for that year. There was not much else she could have done, but it was a nice gesture nevertheless.
If the decedent had bank accounts, you will need to determine if they are:
1. In trust name,
2. In joint name,
3. In the decedent’s name alone but names a beneficiary (POD), or
4. In the decedent’s name alone but with no named beneficiary.
You will need to provide the bank with the new trust EIN for No. 1, assist in making the claim for No. 2 and No. 3, and take possession of No. 4 and deposit the proceeds into a new Probate Estate checking account. Being mindful of the FDIC insurance limits, you will then move any cash you won’t be needing from the Probate Estate checking account to a high-yield (admittedly a relative term) Certificate of Deposit. Assuming that your decedent had a safe deposit bank, you will need to take possession of the contents, open a safe deposit box in the name of the Probate Estate, and transfer the contents to the new box—where you will hold them until you decide whether to distribute them, sell them, or trash them.
Things to Do
1. If you have not already done so, open a checking account for the Probate Estate.
2. Be sure that any existing trust accounts have the trust’s new EIN.
3. Deposit all of the following into the Probate checking account: cash, checks made payable to the decedent, and checks made payable to the decedent’s Probate Estate.
4. Use high-yield CDs as needed.
5. Open a safe deposit box for the Probate Estate to secure jewelry, coins, precious metals, and anything else of value.