Estate Planning

Why Heirs Shouldn't Be Executors

Monday, 27 April 2009 09:31

One of the most important provisions of a will is that which appoints an Executor for the estate.  It is the Executor’s responsibility to carry out the provisions of the will and settle the estate.

Many wills name a spouse or member of the family as Executor, but the complexity of our society is making the corporate Executor increasingly popular.  The Executor must do the following:

• Take possession of, protect and conserve all property
• Collect all debts, claims and notes due
• Determine identity, location and the degree of all possible heirs
• Handle all business interests and settle all affairs
• Review debts and pay all obligations
• File state and federal estate returns and pay taxes

A substantial number of legal documents must be filed, notices published and tax returns prepared.  There will also be appraisals and a significant amount of accounting to be performed.  These tasks are difficult and time consuming for the novice and frequently heart rending for the spouse or child.

Not only can it be emotionally difficult for a family member to execute the estate, it also has the very real risk of dividing the family.  Sibling disputes are common when one of the children is assigned the task of distributing the estate.

Local laws limit executor fees, whether paid to an individual or a trust company, but a professional Executor’s efficient management has often been known to more than offset the fees.

Your attorney will be consulted by the Executor to assist in the legal matters of settling the estate, and you should review the advisability of naming a corporate trustee as either Executor or as an alternate Executor if an individual is incapable or unwilling to serve.

Choosing your executor is a delicate task.  We encourage you to come and meet with one of our qualified advisors.  They will be able to discuss with you the approach you should take to select your Executor.

Brock and Associates, LLC is a financial planning firm specializing in retirement, estate, and tax planning.

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Power of Attorney Rationale - Can Someone Act For You?

Friday, 06 March 2009 09:56

Most of us have wills that will conclude our circumstances after death.  Have we also provided for the eventuality that often precedes death - incapacitation?  Insurance records reveal that a 35-year-old is four times more likely to become disabled than to die before reaching 65.

If injury or illness struck you, could your family gain access to bank accounts and the safe deposit box?  Is someone empowered to cash checks payable to you?  How would they pay pressing bills?  Could they take care of your investments, make claims on your behalf or otherwise manage your assets?  A local court could appoint a guardian, or conservator, of course, but the legalities might consume time and money.

Those who have done a great deal of work with older citizens recommend granting a power of attorney to a trustworthy individual, authorizing that person to act in his or her place in such a situation.  An ordinary power of attorney will not be sufficient, because it becomes ineffective just when it is needed most, when the grantor becomes incapable of independent actions.

Either a durable power of attorney (“valid notwithstanding my incapacity”) or a spring power of attorney (“becomes effective only when I become incapacitated”) is needed.  Not just older people need this power of attorney.  Younger individuals can also be struck with disabling afflictions or accidents.

It is important to give a power of attorney only to someone who can be trusted completely.  The power of attorney can be canceled upon recovery, but in practice, you would have to get back all copies.  That may not be easy, considering there can be copies of which you may be unaware.  If the person who held the canceled power were to go to your bank to take out your savings, it is possible that bank officials may not have received notice the arrangement had been voided.

In addition, your bank, insurance company or other institution will recognize a power of attorney only if it follows a special format.  A Living Will or Medical Power of Attorney is a different matter, having to do with medical decisions, and does not replace the critical need for a durable or spring power of attorney.  It is best to consult your attorney about this issue.

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A Will Is No Substitute For An Estate Plan

Tuesday, 24 February 2009 08:07

If preparing a will has left you feeling satisfied that your estate plans are complete, be wary, this probably is not true.  Especially not true if you have simply taken advantage of the unlimited exemption from estate taxes by leaving everything to your spouse.

The fact that your will might state that everything you own goes to your mate does not necessarily make it so.  The beneficiaries named in other documents - joint property deeds, insurance policies, pension plan papers, IRAs, 401(k) plans and the like - will award possession to whomever is named in them, regardless of what the will document may specify.

If the estate will total more than $1,500,000 (subject to indexing up to $3,500,000 in 2009), leaving everything to a spouse is a bad idea.  The reason is that in addition to the unlimited spousal bequest, one can leave up to $1,500,000 tax-free to other beneficiaries.  If you fail to leave anything other than to a spouse, you are forfeiting that option. Then, when the spouse dies, assuming he or she has not remarried, the tax-free estate is limited to $1,500,000 in 2004.

To put it another way, when an estate, including life insurance, approaches $1,500,000, each spouse should own part of it individually.  This, together with the proper wills, assures that $3,000,000 can be passed on to heirs free of estate tax, regardless of which spouse dies first.

The tax savings from these moves are not inconsequential, since estates currently are taxed at a rate of up to 48 percent.

If the estate will exceed this unified credit amount, (and with company benefits, insurance and inflated home values, that is not exceptional), one should consider naming other heirs.  To protect the spouse during his or her lifetime, $1,500,000 might be put in a bypass or credit trust, with the spouse enjoying the full income from it.  Then, after the spouse’s death, the trust proceeds go to the named beneficiaries, free of further estate taxes.

A will is a rather inflexible estate-planning tool, and it is not effective in reducing the long term effect of estate taxes or the probate expenses that might accompany settlement.

An estate plan should be reviewed periodically by both your financial advisor and attorney.

Brock and Associates, LLC is a financial planning firm specializing in asset protection and generational wealth preservation.

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