The Executor's Guide
Settling A Loved One's Estate or Trust
The Executor's Guide
Settling A Loved One's Estate or Trust
Mary Randolph, J.D.
February 2016, 7th Edition
The step-by-step guide to serving as an executor
If you need to wrap up the affairs of a loved one who has died, you may feel overwhelmed -- especially when you're grieving. But you can do it, and this book will show you how.
A roadmap to follow. The Executor's Guide will lead you through an unfamiliar land of legal procedures and terminology. You'll learn what to do right away and what can wait. Find help on:
- preparing for the job of executor or trustee
- the first steps to take
- claiming life insurance, Social Security and other benefits
- making sense of a will
- what to do if there is no will
- how to determine whether probate is necessary
- filing taxes
- probate court proceedings
- dealing with family members
- handling simple trusts
- working with lawyers, appraisers, accountants and other experts
State-specific information. The 7th edition contains updated tables outlining key points of each state's laws, the latest information on estate taxes, plus worksheets that help you stay organized.
*Applies in all states except Louisiana.
“Explains how to find state-specific information, and an appendix sorts legalities by state.”-Miami Herald
“Covers the gamut of estate chores and helps you get through them.”-Kiplinger's Retirement Report
Table of Contents
The Executor’s Legal Companion
How This Book Can Help
- What Executors Do
- What Trustees Do
- Your Legal Duty
- Payment for Serving as an Executor or Trustee
- Dealing With Emotions—Yours and Your Relatives’
2. If You’re Asked to Be an Executor or a Trustee
- Should You Accept the Job?
- Making the Job Manageable
3. The First Week
- Organ, Tissue, and Body Donation
- Physician’s Certification and Death Certificate
- Burial or Cremation
- Funerals and Memorial Services
- Other Tasks During the First Few Days
4. The First Month
- Set Up a Filing System
- Order Copies of the Death Certificate
- Find the Will
- Find Other Documents That Leave Property
- Send Notifications of the Death
- Keep Property Secure
- Sort Through Personal Belongings
5. Claiming Life Insurance, Social Security, and Other Benefits
- Life Insurance and Annuity Proceeds
- Social Security Benefits
- Veterans Benefits
- Wages Owed the Deceased Person
- The Family Allowance
- Other Possible Benefits and Claims
Taking Care of the Estate
6. Making Sense of the Will
- Does the Will Appear Valid?
- Reading the Will
- Gifts to Groups of People
- Events That Affect Who Inherits
7. If There’s No Will
- Who’s in Charge
- Who Gets What: The Basic Rules
- Understanding Key Terms
- If an Heir Has Died
- Taking Care of Minor Children
8. Taking Inventory
- Step 1: Look for Assets
- Step 2: Make a List of Assets
- Step 3: Estimate the Value
- Step 4: Add Up Debts
- Step 5: Determine How Title Was Held
9. Managing Assets and Paying Bills
- Your Legal Duties
- Keeping Good Records
- Setting Up an Estate or Trust Bank Account
- Managing Tangible Assets
- Managing Cash Accounts and Investments
- Digital Assets
- Paying Claims and Debts
- Giving Property to Beneficiaries
- Selling Property
- Handling a Business
10. Caring for Children and Their Property
- Immediate Concerns
- Raising a Child
- Managing a Child’s Property
- Personal and Practical Issues
- The Deceased Person’s Income Tax Return: Form 1040
- The Estate’s Income Tax: Form 1041
- Income Tax on Trusts
- Federal Estate Tax
- State Inheritance and Estate Taxes
- Other Taxes
- Beneficiaries and Taxes
- Typical Situations
12. Property That Doesn’t Go Through Probate
- Common Assets That Don’t Go Through Probate
- Joint Tenancy Property
- Tenancy by the Entirety Property
- Community Property
- Property Held in a Living Trust
- Real Estate That Qualifies as a Homestead
- Property That Passes to Immediate Family by Law
- Salary or Wages
- Payable-on-Death Bank Accounts
- Life Insurance Proceeds
- Retirement Accounts
- Health Savings Accounts
- Securities Registered in Transfer-on-Death Form
- Savings Bonds
- Pension Plan Distributions and Other Death Benefits
- Real Estate Left by a Transfer-on-Death Deed
- Personal Property in “Small Estates”
13. Transferring Joint Tenancy and Other Survivorship Property
- Real Estate
- Bank Accounts
- Savings Bonds
- If Title Wasn’t Cleared When the First Joint Tenant Died
14. Transferring Community Property
- Your Transfer Options
- Survivorship Community Property
- Community Property Agreements
- State Probate Shortcuts
- When the Second Spouse Dies
15. Claiming Money in Retirement Plans
- Retirement Plans: The Basics
- Who’s the Beneficiary?
- If the Surviving Spouse Is the Beneficiary
- Nonspouse Beneficiaries
- Special Rules for Multiple Beneficiaries
- If a Trust Is the Beneficiary
- If There Is No “Designated Beneficiary”
- If the Beneficiary Has Died
- If No Beneficiary Was Named
- If the Estate Is the Beneficiary
16. Claiming Payable-on-Death Assets
- If the Asset Was Co-Owned
- The Effect of Divorce on POD Beneficiaries
- How Beneficiaries Can Claim Assets
17. Special Procedures for Small Estates
- Are You Handling a Small Estate?
- Claiming Property With Affidavits
- Using Simplified Probate
18. The Regular Probate Process
- Common Questions About Probate
- The Typical Probate Process
- The Process in Uniform Probate Code States
- Probate in Another State
- Disputes During Probate
- Do You Need a Lawyer?
- If You Go It Alone: Working With the Court
19. Wrapping Up a Simple Living Trust
- How Simple Living Trusts Work
- If You’re the Surviving Spouse
- Who Serves as Successor Trustee
- The Affidavit of Assumption of Duties
- What’s in the Trust
- Notifying Beneficiaries
- Getting Valuable Property Appraised
- Registering the Trust
- Debts and Expenses
- Transferring Trust Property
- Ending the Trust
20. Managing a Child’s Trust
- How a Child’s Trust Works
- The Trustee’s Job
- Accepting or Declining the Trustee’s Job
- Gathering Trust Property
- Keeping Beneficiaries Informed
- Registering the Trust
- Investing Trust Property
- Keeping Good Records
- Handling Trust Taxes
- Distributing Property
- If You Want to Resign
- Ending the Trust
Getting More Help
21. Finding More Information
- Online Resources
- Finding Forms
- Finding Definitions
- Researching Specific Questions
22. Lawyers and Other Experts
- When to Get Help
- Deciding What You Want From a Lawyer
- Finding a Lawyer
- Choosing a Lawyer
- Working With a Lawyer
- Paying a Lawyer
- Solving Problems With Your Lawyer.
Appendix: State Information
Chapter 1: Overview
What does an executor or trustee do, exactly? If you’re like many people, you probably have only a vague idea. Essentially, the executor’s job is to carry out the deceased person’s wishes—making sure that assets go to the people or organizations the deceased person wanted to inherit them. But of course, this simple fact barely hints at the work involved or the emotional aspects of the job. It’s not always easy, but it’s a job that you can do well if you bring to it good measures of patience, common sense, and persistence. Some help from this book, and occasionally from knowledgeable professionals, won’t hurt, either.
Winding up an estate or trust will probably take from six to 18 months, depending on the circumstances and the law in your state. Here’s how it usually goes:
• First week: Immediate practical decisions
• Next few months: Financial and legal matters
• One (occasionally two) years: Taxes.
What Executors Do
As executor, you must collect and take care of the deceased person’s assets, pay debts, and distribute what’s left to the people who inherit it. Sounds pretty straightforward, and in many instances it is. Here’s a little more detail:
Gather the deceased person’s assets. This part shouldn’t be hard, especially if you are familiar with the deceased person’s financial affairs and the assets are typical things such as a house, car, and bank and investment accounts. But if you’re unprepared, and the deceased person leaves behind murky finances and jumbled records, you may have a tougher time knowing what property you’re supposed to take charge of. (The best strategy is to get things straightened out before the death, as explained in Chapter 2; if that’s not possible, see Chapter 4 for help with finding and making sense of financial records and other papers.)
Take care of property. You must safeguard the deceased person’s property (both real estate and personal property) until you hand it over to beneficiaries. For example, if a house or condo is empty, and a car is parked at the curb, you’ll need to make sure both are secure. You may also have to decide whether or not to sell certain assets, either to raise cash or to avoid losing significant value. When it comes to managing investments, your main duty is not to turn a big profit, but to avoid losing money.
Pay debts and taxes. Most people don’t leave behind outsized debts or tax bills, so this isn’t normally a problem. But if the estate doesn’t contain enough money to go around, it can be a headache. You aren’t personally liable for the deceased person’s debts (unless you were married, in which case you may be); you’ll pay them from the deceased person’s assets. You will have to file income tax returns on behalf of the deceased person and, if the estate goes through probate and receives income, on behalf of the estate. You probably won’t need to file a federal estate tax return; very few estates are big enough require them. About half the states collect their own estate tax, however, and most of them impose the tax on estates that are too small to owe federal estate tax. Check the appendix for your state’s rule.
Distribute what’s left. You’ll transfer assets to the people who inherit them under the will, under state law, or by contract. This may involve going to probate court, but many assets can be transferred without probate. It will depend on what kinds of assets the deceased person left and how much estate planning was done. These days, many kinds of assets (for example, individual retirement accounts, payable-on-death bank or brokerage accounts, and life insurance policies) can be transferred without going through probate court. In recent years, many states have simplified probate significantly, so even if probate is required, it won’t drag on like a court case in a 19th-century novel. And almost all states now offer simplified probate for “small estates.” What qualifies as a small estate may surprise you: In some states, estates worth hundreds of thousands of dollars can slip under the wire.
Help out. Finally, you may find yourself helping beneficiaries with matters that aren’t, strictly speaking, within your authority as executor. For example, life insurance proceeds aren’t part of the estate, but a beneficiary might want you to help claim policy proceeds.
Summary of an Executor’s Duties
q Find the will, if any.
q Notify the post office, utility companies, credit card companies, banks, and other businesses of the death.
q Notify the Social Security Administration and any agencies from which the deceased person was receiving benefits.
q Inventory all assets and, if necessary, have valuable ones appraised.
q Determine whether or not probate is necessary; if it is, conduct the probate court proceeding or hire a lawyer to do it (or help you).
q If there’s a living trust, work with the successor trustee to coordinate bill paying, property management, and other tasks.
q Notify beneficiaries named in the will or people entitled to inherit under state law.
q Take good care of estate assets until you turn them over to the beneficiaries.
q Solicit beneficiaries’ input on and consent to important decisions, such as selling assets or changing investments.
q Collect money owed to the estate—for example, final wages or insurance benefits.
q Pay bills owed by the estate.
q File final income tax returns for the deceased person.
q If the estate was very large, file estate tax returns.
q Distribute the assets.
What Trustees Do
More and more people are using living trusts as substitutes for wills, and you may find yourself tapped for the job of trustee.
The document that creates the trust names the person, usually called the successor trustee, to take over when the trust-maker dies. If you’re named as trustee, you take over control of trust assets at the death of the person who made the trust. You don’t have to wait for court approval.
Your job, however, is likely to be broader than just taking care of trust assets. If the deceased person left a will, it probably names you as executor, too. And if there isn’t a will, it usually falls to the trustee to do all the other jobs that traditionally belong to an executor: pay debts, file tax returns, and transfer property that wasn’t held in trust.
Here are the three kinds of trusts you’re most likely to run into:
Simple living trust. A simple living trust is one that has only one purpose: to avoid probate. If you’re wrapping up this kind of trust, you can probably carry out your duties in a few months. That’s because you don’t have to go through probate court, with all its requirements about notifying creditors and heirs that the estate is being settled. All you do is transfer trust property to the people named in the trust document.
Bypass (AB) living trust. This kind of trust, made by affluent couples who want to avoid estate tax, can last for years after the first spouse dies and involves complex tax planning. You’ll need expert help.
Child’s trust. These trusts are set up so that an adult can manage property left to a child (often a grandchild). If you’re the trustee, you may have to invest and spend trust property until the children are grown. Especially if the trust is for more than one child, you’ll have a lot of decisions to make.
Summary of a Trustee’s Duties
q Prepare some simple paperwork to document the fact that you’re taking over as trustee, in case people or institutions you deal with want a record of your authority.
q Determine what property is held in trust.
q Notify beneficiaries that you’re now in charge of the trust.
q Get valuable property appraised, if necessary.
q Pay debts and expenses related to the trust, if any.
q Transfer trust property (or in some cases, the proceeds of its sale) to beneficiaries named in the trust document.
For much more valuable information about serving as a trustee, see The Trustee’s Legal Companion, by Liza Hanks and Carol Elias Zolla (Nolo).
Your Legal Duty
As an executor or trustee, you are in charge of property that belongs to other people (beneficiaries and creditors), and you are following instructions left in a will or trust by someone who is no longer there to supervise you. Because such a situation leaves a lot of room for mischief by a dishonest person, the law requires you to act with the highest ethical standards and to follow a set of well-established rules and procedures.
An executor has what’s called a “fiduciary duty.” It means that you must always act in the best interest of the estate—not your own interests. For example, if you and the deceased person owned a business together, and you want to buy the deceased’s half-interest, you must follow a scrupulously fair, open, and competitive process to offer the business interest for sale. The process would have to be run solely for the estate’s benefit, not yours.
Obviously, wasting or stealing estate money would violate your legal duty. Here are a few examples of other acts that could get you into trouble:
• benefiting personally at the expense of the estate—for example, selling yourself estate property
• selling an asset during probate if you don’t have authority
• investing estate assets recklessly—for example, in a volatile stock, or
• arranging things so that one beneficiary ends up with an unfairly large share of assets.
If you violate your fiduciary duty, beneficiaries can sue you for any loss you caused them, and a court can remove you from your post. In some states, a court can remove an executor or trustee not only for misconduct, but also if all of the beneficiaries request it.
An executor who steals money from the estate can go to jail, just like any other thief. For example, a Massachusetts executor, who was in charge of $550,000 from a wrongful death lawsuit over her mother’s death, didn’t split the money with her siblings as she should have under state law. Instead, she and her husband kept most of it; they were both sentenced to 18 months’ imprisonment. (“Brockton woman sentenced after cheating her siblings out of thousands in settlement in mother’s death,” Boston Globe, Jan. 25, 2012.)
Payment for Serving as an Executor or Trustee
You are probably entitled (under the terms of the will or trust, or by state law) to reasonable compensation for your work as an executor or trustee.
Many family members, however, feel uncomfortable accepting money and don’t take a fee. There’s also a practical reason to decline a fee: It’s taxable income. If you’re inheriting everything anyway, you’re better off waiving the fee and instead inheriting the money, which won’t be subject to income tax. (The exception to this rule comes if estate tax will be due, and your personal rate is lower than the estate’s; in this situation, it may be wise to take the payment as compensation. If the estate is large enough to owe estate tax, you should be consulting a tax expert anyway, so ask about the executor’s fee.)
If your responsibilities are onerous or long-lasting, or you’re not a close relative or friend, it’s perfectly appropriate to accept a fee for your work. You may have been chosen because of your special skills—perhaps you can manage the deceased person’s business until it can be sold, or you have the enviable ability to calm rancor among family members—and it’s only fair that you be compensated.
Just how much you’re entitled to depends on the terms of the will and your state’s law. If the will doesn’t set out a specific fee or hourly rate, under state law in most places, you can claim a “reasonable” fee. It’s up to you to decide what’s reasonable. (If beneficiaries or creditors object, and there’s a probate court proceeding, they can complain to the court, which will review the fee.) Some states (New York, for example) let executors claim a percentage of the value of the probate estate. Still a few others give executors a percentage of the money that flows in and out of the estate, to try to reflect the amount of work the executor must do managing assets.
Dealing With Emotions—Yours and Your Relatives’
Unless you’re a professional, handling an estate or trust is much more than just a legal and financial job. When you’re acting on behalf of a family member or close friend, you must deal with powerful and sometimes complicated feelings about the loss.
These emotional and spiritual issues are, of course, profoundly important and long-lasting. This book focuses on the legal and practical aspects of the situation, but there are many sources of emotional sustenance—books, websites, organizations, counselors—in addition to your own network of family and friends. Every resource has its own tone, philosophy, and advice; you’ll have to find what speaks to you.
As executor or trustee, you will probably also have to work with the emotions of others. Beneficiaries and family members may be cooperative and patient—or grasping and unhelpful. Their demands may weigh more heavily on you than do probate court paperwork and investment decisions. On the other hand, you may garner much-needed support from the network of family and friends.
What Happens to Inheritances?
According to one study, Americans in their 20s, 30s, and 40s who inherit money save about half of it and spend or lose the rest. Within two years, a third of people who inherit money have negative savings—that is, they’re in debt. These figures come from Jay Zagorsky, of Ohio State University, who analyzed survey data from the Federal Reserve and a National Longitudinal Survey funded by the Bureau of Labor Statistics. (His 2012 paper, “Do people save or spend their inheritances? Understanding what happens to inherited wealth,” was published in the Journal of Family and Economic Issues.)
Financial experts agree on some commonsense advice for people who inherit money.
Wait. Take some time to think about short- and long-term goals. Talk to your spouse about priorities: College? Retirement? Travel? Home repair? Paying off debt?
Evaluate your financial situation. Look at your emergency savings (it’s always a good idea to have enough cash to live on for a few months) and your retirement account. Your finances may be better or worse than you think they are.
Don’t make promises. It’s a wonderful impulse to want to help family or friends by helping to pay for school, car repairs, a house, or whatever else they might need. But if you make promises before realistically evaluating your own needs and circumstances, you may not be able to keep them—and risk damaging the relationships you hoped to nurture.
You’ll have to develop your own strategies for dealing with difficult family members. (One good use of a lawyer can be as a buffer between you and them.) A few simple actions, however, are always helpful:
• Keep beneficiaries informed about what’s happening (or not happening) with regular letters or email.
• Make sure you have legal authority for everything you do.
• Keep careful records of all actions you take.
Probably the best way to head off spats, and even lawsuits, is regular communication. You may think you don’t have anything to report—but that may be the time beneficiaries most want to hear from you. Even brief email messages, sent regularly, can calm people’s anxieties.
Some executors find it helpful to hold family meetings to discuss ongoing issues. Others avoid such gatherings like the plague, because they know they will only ignite smoldering problems. Some families hire a family counselor or therapist to help people talk—and listen—to each other and work through problems. You’ll have to discover, through trial and error, what works for you and your family.