Those who know me personally know that I lost my father this summer. As an investment advisor I’ve helped clients navigate life changing events like this before, but this time I am experiencing it first-hand. When my mother passed in 2011, I assisted my father with managing their affairs. I relied upon my professional experience to help my father rename beneficiaries on retirement accounts and life insurance policies. I was very organized.
This time around was different.
Losing your second parent is difficult emotionally, but having to settle an estate upon the second they die comes with its own set of challenges. I’m going to share some of my experience with you, because even for those of us who understand the process better than most, the process can sometimes be surprising.
Get Your Legal Affairs in Order
I was lucky that my parents had very good legal representation—all of their legal matters—including their Estate Plan—were in proper order. Typically, I find that clients often want to pay the least amount they can for an estate plan, or at least they will complain about the cost. I try to tell them that a good estate plan is going to cost them money, but a bad plan—or no plan—could cost their loved ones A LOT of money. I remind them that they won’t be around to see if it works, but their heirs, or their trustees and/or executors will know if the plan worked or not.
Don’t cut corners and don’t assume that you don’t need an estate plan. Find the right attorney for you. Draft an estate plan when you are young and review and update it at every life event- birth of a child, purchase of home or vacation home, divorce, death of a family member, or the sale of a business.
FUND your trust. You are going to hear that from your estate planner a million times. If you aren’t going to follow through, then I suggest you pay them extra and make sure the trusts are funded.
Why? Because if the trusts are not funded then that plan that you paid for isn’t going to work. You fund your trust by retitling everything—your real estate, ALL your bank accounts, your investment accounts, your cars or boats or any other vehicle you own, and your safety deposit box. Did you lend anyone any money, do you have promissory notes? Retitle them, too.
Funding your trust ensures the ease of administration for your trustee. It keeps your estate private by avoiding probate and ultimately—can save you money because everything is where it should be and you won’t have to pay someone to get it there after you are gone. My parents had very good legal representation, but they forgot to retitle some of their assets, so now we have to file for probate.
A Note on Probate
Probate is a court procedure, governed by state law that may be necessary following the death. Probate is the legal process the state takes through the court to identify the decedent’s rightful heir, as well as their share and also to transfer the title of property from the decedent’s name to the names of the heirs. Probate is time consuming—and it’s public.
One of the steps in probate is to notify creditors of the death and allowing them the opportunity to make claims against the estate. That means the notice is in the paper or online and can delay the settlement of the estate. Probate can be avoided if property is jointly owned by the decedent and an individual with the right of survivorship, including life insurance, annuities or retirement accounts name designated beneficiaries; or assets that are registered Pay on Death (POD) or Transfer on Death (TOD).
About retirement accounts and insurance policies.
Make sure your beneficiary designation forms are up to date. Is your spouse your primary beneficiary, have you listed contingent beneficiaries? Consult your attorney if you are naming a trust or another non-person as a beneficiary. Make sure to take the required minimum distribution from the IRA (if it hasn’t already been taken by the decedent) before transferring ownership to the beneficiaries. Make sure your beneficiaries are correct on all insurance policies. Oh, and ask if there is a spousal rider. We didn’t know about a spousal rider on one of my father’s policies and it has made for an administrative boondoggle.
Before transferring any accounts retain a copy of the balance as of the date of death. Contact your broker or custodian and request a statement as well as a step-up in basis report for any accounts owned by the decedent or their trust. After retaining date of death valuations, close bank accounts and transfer balances to one account for ease of administration. If you have to open an estate, make sure to have an estate checking account (with its own Tax id number) and a checking account in the name of the trust, if necessary. The trust will have its own NEW tax identification number as well. Contact Social Security, if there is a surviving spouse or an eligible dependent there might be survivor benefits available, if not, a final payment will be made to the decedent.
Hire a Good Accountant
A final federal and state income tax return will have to be filed for the decedent, the trust and the estate (if one has been opened). A final federal estate tax return may have to be filed as well. Remember what I said earlier about estate planners and cost? Well, the same holds true for your accountant. You don’t know how good your accountant is, until you have a bad one, or if you don’t heed their advice. My advice, find a good accountant and heed their advice. Your estate attorney can file the tax returns for you, but I have found that the final individual return and sometimes the trust return is best handled by your accountant because they have all the previous returns at their fingertips.
If you are the executor or trustee you will have beneficiaries associated with the estate. You will have your emotions, and perhaps those of your siblings or step-siblings, to manage as well as staying as objective as possible. Keep them informed. Keeping detailed records of your actions will make the final settlement easier. Hopefully, the beneficiaries understand that your role as trustee means that you are simply carrying out the wishes of the decedent and that the outcomes are not yours- but theirs.
Lastly, don’t go it alone. Leverage your estate planning attorney and your CPA. They are the professionals who can help you navigate the tricky stuff and keep you on track. They know other professionals who can help you value and liquidate coin or art collections. They have seen almost every situation and will be invaluable to you as you fulfill the role of trustee.
Past performance is no guarantee of future results. Returns are presented net of management fees. There can be no assurance that any of the securities referred to herein were produced for or remain in portfolios managed by Granite Investment Advisors. A complete list of all Granite Investment Advisors’ recommendations within the preceding year is available upon request. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities described herein.