Efficient Estate Administration

Admirable Administration

    Question. If today were your last, how would you be remembered regarding your estate planning? Would it be for leaving a mess for others to clean up, or would it be for leaving a thoughtfully drafted, thoroughly implemented and carefully maintained plan so your appointed fiduciaries could smoothly administer your estate?
    Finishing well, in terms of your estate planning, is the focus of this article, as we review general responsibilities fiduciaries assume when administering an estate. Accordingly, you may want to share it with them while there is still time to discuss your wishes.

The Three Phases

    Upon your death, the post-mortem (i.e., after death) responsibilities of your appointed fiduciaries fall into three phases of estate administration. Whether under your Revocable Living Trust-based plan or under your Will-based plan, these responsibilities are to:

1. Collect and manage your assets;
2. Pay your debts, taxes and expenses; and
3. Administer and distribute your assets for the benefit of your named beneficiaries.

    Note: Your fiduciaries should seek appropriate legal counsel throughout each of these three phases to ensure that all of the “i’s” are dotted and the “t’s” are crossed.

Collection & Management

    Without delay, the first responsibility of your fiduciaries is to protect and preserve your assets. This includes taking an inventory of the assets, insuring and safeguarding them, as well as determining their values as of your date of death. Make sure your fiduciaries know where you keep your asset inventory, as well as the account statements, certificates and titles to back it up.
    If you have a funded Revocable Living Trust along with up-to-date records of the trust assets (and their respective values), then you will greatly ease this initial burden on your fiduciaries.
     Even if you do not have a Revocable Living Trust-based estate plan, maintaining current and accurate financial records can save your fiduciaries considerable time (and therefore money) in fulfilling their Collection and Management responsibilities.

Debts, Taxes & Expenses

    Once your assets have been collected and are under management, the fiduciaries must arrange for the payment of your just debts, your tax liabilities and any expenses associated with the post-mortem administration of your estate. Again, time is of the essence.
    Consider this: estate tax returns must be filed within nine months of death, and many post-mortem planning opportunities, such as disclaimers and certain elections (e.g., QTIP, alternate valuation, etc.), must be timely made or they are lost … and with them potentially hundreds of thousands of dollars in estate tax savings.
    Failure to comply with applicable legal deadlines can expose your fiduciaries to some rather unpleasant personal liabilities, to include tax liabilities of your estate, and lawsuits from creditors and disgruntled heirs. Administering your estate can quickly become a lose-lose proposition for your fiduciaries.

Administration & Distribution

    Whether your estate plan ultimately provides for the distribution of your assets to your beneficiaries in one lump sum, in multiple distributions or through ongoing trust administration (i.e., to protect your assets for and from them), your fiduciaries must ensure that accurate records are maintained and receipts obtained from each beneficiary. In fact, the failure to account for all income, expenses and disbursements throughout each of the three phases of estate administration can result in civil and, potentially, criminal sanctions.

Final Thoughts

    Post-mortem responsibilities can be very complex. Before you select and appoint fiduciaries for your estate plan, or agree to serve as a fiduciary for someone else, you should seek appropriate legal counsel. You (and your fiduciaries) will be glad you did.

Treasure Hunt

    Question: What property do you own, where is it located and how much is it worth? Next question: Is this information recorded, whether in hard-copy or electronically? Next question: Who, if anyone, has knowledge of and access to this information? If you cannot answer each of these questions with confidence, then your final legacy for your loved ones may resemble a very unpleasant treasure hunt.

A Common Scenario

    It happens too often. Responsible people meet with legal counsel and prepare comprehensive estate plans. Their plans may even include cutting edge techniques implemented through proven legal instruments. Then, an injury or illness strikes these responsible people and they become incapacitated. Eventually, they die. Sometime thereafter, the successor decision-makers appointed in the legal instruments meet with the legal counsel who prepared the estate plans and receive their marching orders. These successors assume their positions of responsibility only to make a shocking discovery: There is little, if any, information available regarding the property they are now legally required to identify, locate and value.

The Problem

    Instead of approaching estate planning as a process to get (and keep) their legal affairs in order, too many people mistakenly believe that everything is okay once they sign their legal instruments. Nothing could be further from the truth. In fact, signing legal instruments without identifying, locating and valuing the property is like buying an automobile without putting fuel in its tank. It may look nice, but you are not going anywhere.

The Solution

    You are in the best position to know what you have, where it is located and what it is worth. After all, you likely are identified as the owner on any deed, title certificate or account regarding each asset you own. Additionally, you probably receive notice each year from tax collecting authorities to remind you of your property ownership (and the taxes you owe). If nothing else, make a copy of your deeds, titles, account statements and tax notices, then retain them with your legal instruments.
    Do you have heirlooms and collectibles that are difficult to value? If so, then a professional appraisal is essential to establish their value for estate distribution and death tax planning.

The Follow-Through

    It has been said that the will to succeed is for naught without the discipline to plan. When it comes to avoiding an unpleasant treasure hunt for your loved ones, maintaining accurate records is essential to the success or failure of your estate plan. And do not forget to communicate this information to your successor decision-makers. Even the best-laid plans succeed or fail depending on how well they are recorded and communicated. Remember: The time that you invest today to record and communicate information about your property will make your estate administration more efficient (and less expensive) later on.