Rainbow Law Estate Planning Workbook
 Page1
INTRODUCTION In 1996, former President Bill Clinton signed the Federal Defense of Marriage Act (DOMA). The Act effectively defined “marriage” as a union between one man and one woman and also permitted states to ignore and disavow marriages between same-sex partners that were granted by other states). When DOMA was signed into law, by the very President we helped to get elected -- our dream of seeing marriage equality in our lifetime seemed impossible. Despite gains in Massachusetts, Vermont, Connecticut, New Jersey, Oregon and California, opponents of equality continue to demand that rights granted be rolled back and that no further advances be permitted. Since then -- even as the George W. Bush administration threatened an amendment to the US Constitution banning equal marriage rights -- two States have passed laws granting equal marriage rights -- Massachusetts and CaliforniaThe California Supreme Court ruled on May 15, 2008 that same sex couples have the right to marry in California. Proposition 8, which limits marriage to one man and one woman, was passed on November 4th, 2008. The decision is being appealed. and last week the Supreme Court of California heard oral arguments from both sides. The Court has 90 days to issue its decision but equal marriage advocates fear the Court may not want to overturn Prop 8.). The States of Connecticut, Vermont, New Jersey and New Hampshire now have laws permitting gay and lesbian partners to enter into a civil union.Civil Union's generally grant state-level spousal rights that are identical to marriage in every way except by name. The reasoning behind these laws goes something like this: lawmakers representing more progressive states get to feel good about themselves for being magnanimous and "open minded" but really, they are cowards who let many of their most supportive constituents remain second class citizens living in a legal limbo.. Domestic Partner benefits have been granted to residents of Hawaii, Maine, the District of Columbia, Washington, Maryland, Oregon Oregon's Domestic Partnership law grants state-level spousal rights to gay and lesbian partners and California California's Domestic Partnership law grants state-level spousal rights to gay and lesbian partners and any couple who missed the opportunity to marry in that state is still eligible (for now) to register as DP and receive much of the same rights.. Although Rhode Island residents do not have a legal right to marry, when Rhode Island residents do get married in a state that grants equal marriage rights, the State will extend spousal benefits to those couples. So-called ‘conservatives’ use the issue of equal marriage as a weapon to frighten Americans into believing that the ‘homosexual agenda’ will destroy society and ‘traditional families.’ This technique has been an effective distraction that conceals right-wing efforts to dismantle our social safety nets, devastate the public education system, eviscerate the environment, bankrupt the economy, outsource jobs, weaken civil rights and liberties, fight preemptive, unjust wars and on and on… Trying to do something on the State and National level may seem too daunting a task. But there is something each of us can and must do to protect our own family now.
By taking the time to put your wishes in writing to create Advance Directives and Estate Planning documents you can protect your own rights as well as those of your partner and children.
We are living in scary times and right now for most lesbian and gay Americans there is no justice – there is JUST US.
Congratulations on taking this first step toward getting all your ducks in a row!
As it turns out, the acronym for the first three words in the phrase “get all your ducks in a row” is G.A.Y. which prompted us to adopt the phrase as our slogan, which in turn inspired our sweet little ducks in a row logo. But, as fun as all that may be, getting your ducks in a row is actually very serious business. And so we ask… DO YOU HAVE ALL YOUR DUCKS IN A ROW? If not, is it because:
Naturally, no one wants to think about illness, death and dying – especially when it comes to our own lives and those of our loved ones. But because we are unwilling to think about the hard stuff, an alarming number of gays and lesbians have put off getting their legal ducks in a row. Statistics show that 7 out of 10 Americans – in general -- do not have a Last Will. We believe the number is much higher in the LGBTQ community. This is especially alarming given that – unlike heterosexual married spouses -- committed gay and lesbian partners have NO built-in legal protections -- With the exception of the list of States discussed in the forward. Even those State's laws are still rather tenuous given the non-stop efforts by opponents of equality who are hell-bent on denying us our fundamental rights. Sadly, as a result of this disparity, many will lose property, children, hospital visitation and the right to make medical and financial decisions as well as rights to arrange for burial, cremation and organ donation for our partners. And all of that pain and suffering could easily be avoided by writing down our wishes in advance! In short, PLANNING for the inevitable is not about death and dying. It is about life and love. Page 2 Estate Planning and the LGBTQ Community For starters, “Estate Planning,” is just a high falutin’ way of describing a written plan to make sure, after you die, your assets (the stuff you own) passes in an orderly and efficient manner to the person, persons or organizations you name. Essential Estate Planning documents are defined and described in another chapter, here.
A marriage bestows concrete legal and tax benefits to heterosexual married couples. Sadly, the same laws that bestow those benefits do not recognize same same-sex couples – we are "invisible" in the eyes of the law and therefore have no legal relationship to one another. Since the law treats gay and lesbian couples like legal strangers, we must create legal rights and protections through the use of estate planning documents and contracts. 2. The "Estate Plan" You Cannot Afford to Use! If you and your partner have not created Estate Planning documents, including a Last Will and Testament, your State has prepared an estate plan for you -- free of charge! This free estate plan is referred to as "intestacy" or “intestate succession.” Under your State’s intestacy laws, your elected officials were kind enough to assume that they know best how you would want your estate to be distributed. And of course, since state laws tend to discriminate against same-sex couples (at the very least they do not acknowledge our right to exist), when we die without a Last Will the law assumes we would want our estate to pass to our biological relatives. And only after much of the value has been used up in a costly and time consuming probate proceeding. Your biological relatives consist of (in this approximate order of importance) your legal (heterosexual) spouse, your children, you parents, your siblings, your aunts and uncles, your nieces and nephews, your cousins, and so on. If you have no biological relatives then the State will inherit your estate. Nowhere on this list does it mention your same-sex partner. In order to include your partner, you must put your wishes in a legal writing! Page3 A. What is an Estate? The very word ‘Estate’ conjures up images of mansions and limos. If that is so, why would little ole you -- driving around in your Subaru and owning or renting a modest home – ever need to think about let alone plan for something you don’t even have? Well, if you own anything at all – whether it be real estate a bank account, a mutual fund, stocks, bonds, a car, jewelry, furniture – or even if you only own the toaster-oven you received as your "coming out" gift -- then you – in fact – have an ESTATE! Another way of looking at it is this: While you are living, if you want to get rid of all or some of your stuff, you simply sell it at a yard, garage or moving sale. Once you are dead, someone else will sell that very same stuff at an Estate sale. Thus, the word ‘estate’ merely describes the stuff you own at the time of your death – in other words your assets – no matter how much or how little you own. Page4 B. What's as Estate Plan?
If you do not have your own written plan in place, your state’s law has provided one for you. And the plan that your state’s legislature has enacted (unless you live in one of the few states that recognize same-sex marriage) grants ALL rights to your legal relatives and NO rights to your partner.
For the purpose of Estate Planning, a Last Will and Testament and a Living Revocable Trust. These documents, in combination, allow you to:
Other documents (i.e. Advance Directives) give you an opportunity to name one or more person – in advance -- who will make medical and financial decisions for you if you become incapacitated:
These documents (as well as others which are discussed elsewhere on this website) provide you with an opportunity to make an already difficult period less stressful for your loved ones. It may seem like a hassle to take time to do this but if you do not do it now, your failure to act may cause severe pain to your partner and/possibly your children who may lost their home and property! Page 5 C. What an Estate Plan Should Do
Planning for the inevitable may not be the most enjoyable thing you have ever done. However, with effective estate planning it is possible to transfer the greatest amount possible in the least amount of time to the people you love. Every estate plan should do the following:
Page 6 D. How do I Make an Estate Plan? Once you have decided that you will create Estate Planning documents, your biggest challenge is getting up the gumption to do the work that is required to make your plan effective. First: Make a list of the stuff you own – your ‘assets.’ A good first step is to sit down and make a list of all your valuable stuff – real estate, personal property, financial assets, etc. If you have a partner, you both need to do this -- together or apart. Put the list in writing. Next, separate the list into three columns, one list will include property that is owned by you, a second list is made of property owned by your partner and a third list of jointly owned property. Second: Talk about your plan with your partner. After the lists are made, the fun really begins -- you need to talk to each other about your stuff. How will your stuff be divided if you split? Who will inherit your stuff when you die? Do you want our partner to inherit everything? What is your partner dies before you? What if you die together? Try to anticipate all possible scenarios and hammer out a plan for what you want to do with your stuff in case each scenario becomes a reality. This conversation can be very difficult. Don’t let that keep you from going forward with your need to get all your ducks in a row! Third: Make a list of your ‘cast of characters.’ Who do you want to inherit your stuff and who will you put in charge of making decisions about your health care and finances? List their names! Perhaps you want your partner to make medical and financial decisions for you if you become disabled – or maybe you would rather ask a trusted friend or family member to do so. Think about the possibility that the people on your list will predecease you – who would you want to take their share or make decisions in their place? Collect and make a note of the addresses and phone numbers of all of the people on your list.Fourth: Talk to those people are naming as a ‘decision-maker.’ This is a great responsibility and you do not want to surprise this person someday with a burden they may not want to carry. Ask if they understand what you would like them to do and if they are willing to do so. Fifth: Make a plan for your dependents – your children and/or pets. Who will care for them after you are gone? What can you do to provide financial support to whomever will care for them? Who will be your second choice if your first choice is unable to care for them? Sixth: Tell important people in your life that you have created these documents. The last thing you would wish on your partner is to have disgruntled family members fighting over decision making powers and/or inheritance rights at this very stressful time -- especially since you will not be around to able to defend your wishes! We recommend that you personally tell your family and close friends you have signed these documents. Give copies to a clergy member or close friend who may be able to intervene calmly on your behalf. If you do this you will no doubt greatly ease the burdens of your partner and family who will be trying to care for you or are grieving your death.
Page 7 II. List Making Worksheets: It is a good idea to prepare for making your documents by making a few lists. First, you will list all your "stuff" Your stuff are your valuable assets, for example, real estate, automobiles, collections (books, art, music, etc.), antiques, family heirlooms, bank accounts, life insurance, etc. But, NOT your socks or toothbrush! Then make a list of all of the people -- their full legal names, addresses and phone numbers -- who will be named in your documents. A. List 1: My Stuff, Your Stuff, Our Stuff:
Get out 3 sheets of paper and label the first one "Our Stuff." Here you will list the valuable i.e. property that has sentimental value as well as monetary value. If someone would buy it or fight over it, it probably has value! assets the two of you bought together or that you both consider jointly owned. Label the next sheet, "My Stuff Swap the word "my" with your name" and list all of valuable items of property that belongs to you. You know, the stuff you had before you got together, your own family heirlooms, gifts to you from friends or family, etc. Label the 3rd sheet with "Partner's Stuff Swap the word "partner" with your partner's name" and list all of valuable items of property that belong to your partner. B. List 2: Your ‘Cast of Characters’ On a separate sheet of paper, write down the full, legal names, addresses and telephone numbers of all of the people you want to inherit your property and also those you want to empower to make medical and financial decisions for you, manage your estate if you become incapacitated, and distribute your assets to your beneficiaries once you are gone. Just in case your first choice of a beneficiary, agent or successor trustee predeceases dies before you you, consider including an alternate person for each name on your list. If you wish to disinherit leave them out of your Will or Trust someone, make sure to list them too. Do the same as the previous for your partner. On to the next chapter to better understand what each document is and how it serves tp protect and/or empower you and your partner! In order to ensure that your property will pass to your partner or other family members or friends, you need to create specific estate planning and other documents as well as advance directives that function produce particular results. For anyone in a relationship that is lacking legal recognition, it is important to have some form of estate planning in order to avoid disinheriting your partner. If you do not have an appropriate plan in place, state law will take over, your assets will be distributed according to a "one-way-fits-all" intestate succession system and your partner will receive nothing. The following documents will help you protect your family from unnecessary loss and emotional suffering: Page 8 There are many types of Trusts that can be designed to do many things – for example, if you are wealthy, there are tax avoidance Trusts. If you are disabled and are receiving government benefits (like disability), there are Trusts that will allow you to continue to receive those benefits even if you are the beneficiary of your partner’s estate. The type of Trust included in our packages is the simple, Living Revocable Trust which helps to better protect your non-legally related partner's rights or the rights someone else you choose. After signing your Living Trust, you continue to own and fully control all of your assets. As Trust is basically a contract between the Grantor the person who creates the Trust who, incidentally, is you and the Trustee the person who will manage the Trust assets, who is also you!. In the Trust contract the Grantor (you) gives all of his or her assets to the Trustee (also you). Obviously, you never really give yourself anything. The concept of giving yourself stuff you already own is called a “legal fiction.” In the Trust, the Trustee agrees to manage the Trust assets everything that the Grantor “put into” the Trust in a manner that will benefit the Grantor. After the Grantor’s death, the Successor Trustee the person you appoint to take your place when you, the original Trustee, become disabled or die agrees to distribute give to your beneficiaries the Trust assets according to the Grantor’s (your) wishes. In your Living Trust, you name the people and/or organizations also called your beneficiaries who you want to receive your assets after you die. There are several reasons a gay and lesbian person would be better off having a Living Revocable Trust and not just a Last Will and Testament. For starters, a Trust is a good way to avoid the probate process There is a very thorough discussion of the probate process in the final chapters of the Workbook. More importantly, a Living Trust is less likely to be successfully challenged Any legal document can be challenged by anyone with a legal right to do so. For example, a legal family member, a medical professional or a court appointed official. That is why Rainbow Law uses language that makes it more likely than not that your documents would survive such a challenge if one were made. by disgruntled family members, etc. And, your Trust takes effect at the moment it is signed. You live with your Trust (hopefully) for many years before anyone else assumes management. Financial institutions where you have accounts will have become accustomed to dealing with your Trust. So, when your partner (or another person you appoint as your Successor Trustee) “steps into” your shoes as the Trustee of your Trust, no one is surprised or indignant. It should be a smooth and easy transfer. Contrast this with a Last Will and Testament that does not take effect This can be a problem when someone challenges your will and you are not around to defend your wishes and your choice of beneficiary and executor until you die. We will discuss a Last Will and Testament in more detail in the following chapter. In short, a Living Trust:
After you create your Trust, to get the maximum benefit and protections from it, you will need to fund transfer your valuable financial assets and property into it by opening accounts and taking title to property as Trustee of your Trust your Trust. Some people feel that the process of funding is just too complicated and too much of a hassle. If you think it is a pain for you to do run around to banks to close accounts and open new ones in the name of your trust and courthouses to record deeds that transfer title from you as an individual to you as trustee of your trust, just think of the problems your partner or other loved ones will have trying to do the same with your property and no proof that you authorized them to do so! When you are ready to transfer property and accounts into your Trust you will likely need to provide copies of certain sections of your Trust document to your financial institutions. For example, they may want a copy of the cover page since it contains the name and date of the Trust. They may also request the signature page to show that the Trust is valid. And, the bank will no doubt need a copy of the page that appoints your Successor Trustees in order to recognize the person to whom you appointed to manage and settle your Trust. For property without a title or ownership documentation, your Trust includes a page called “Schedule A” where you will list all of the trust account numbers as well as listing other property that you want to be considered as belonging to your trust. Each financial institution where you have an account will provide the proper wording to list your trust assets on Schedule A. Page 9 2. Last Will and Testament A Last Will and Testament is similar to a Trust in that it is used to pass property to beneficiaries of your estate. Every gay and lesbian person living in a State that does not legally recognize their relationship should -- at a a minimum -- have a Last Will. A Last Will and Testament is a testamentary document a document that creates, extinguishes or transfers and interest in or right to an asset or property after someone dies that does not take effect become valid until the testator person signing a Will dies.
Even if you create a Trust, you still need to make out a Last Will and Testament -- otherwise, you die Intestate without a Will and your estate will be subject to intestate succession your State legislature has determined a succession of people who stand in line to inherit your property after you die. Those people are a legal spouse, your parents, children, siblings, aunts, uncles, nieces, nephews and cousins - not your partner or non-biological children. If your estate plan includes a Living Revocable Trust, your Last Will should contain a “pour-over” clause directing that all of your assets be given to the Trustee of your Trust. The pour-over clause will help to keep your estate out of Probate because any asset or property that you did not "put-into" your Trust prior to your death will "pour-into" your Trust estate after your death. A Last Will and Testament allows you to:
There are three major drawbacks to using a Last Will and Testament without a Living Revocable Trust:
Page 10 3. Advance Directives documents that allow you to plan, in advance, for someone to manage your finances and make medical decisions for you when and if you are ever unable to do so for yourself. They also let you choose what medical treatment, if any, you want administered in the event of your imminent death or permanent unconsciousness: All of Rainbow Law's document packages include a set of Advance Directives. In fact, these are the only documents included in the Free Document Package. Advance Directives include:
Each state has its own requirements for Advance Directives and Rainbow Law makes sure the documents we make are valid in your State.
Page 11 4. Deeds to Property: If you own property that you want to put into your Trust, we will make a quit claim deed that transfers that property from you as an individual to you as trustee of your trust. If you prefer we add your partner's name to your deed see bottom of this page for a few potential drawbacks to adding your partner's name to your deed without putting your property into your trust, we will do that instead. There are four ways to own property with someone and/or ensure that it passes to your partner upon your death:
There is no hard and fast rule about which form of ownership you should choose. It is a matter of deciding which form of ownership is right for your circumstances.
However, you should keep in mind that joint tenancy does not eliminate probate, but only delays it because although the jointly held property passes to the surviving joint tenant without probate, the property is ultimately subject to probate upon the death of the last survivor unless they put the property into a trust! Some drawbacks of adding your partner's name to your deed:
Page 12 5. Living Together Agreement Also known as a Partnership Agreement. It is essentially a contract that attempts to mimic some of the rights and obligations that are automatically extended to spouses in a legal marriage: While same-sex partners cannot legally marry, we can write our own contracts, selecting the terms and conditions we prefer, within the limits prescribed by law.
Unlike equal marriage rights, these agreements do not provide social security benefits for a widowed partner, or any other benefit deriving from legal marriage. The practical purpose of these agreements is to put into writing the expectations of both partners to prevent potential misunderstandings or disputes. And, a Living Together Agreement, like a prenuptial agreement, can be tailored to fit your individual situation and needs, especially regarding property ownership. Depending on how it is drafted, a Living Together Agreement, may:
Although it may be difficult to sit down and negotiate the terms of a potential future breakup while you are still happily "married" it is well worth the work because it helps couples think about many facets of a relationship otherwise often unexplored. Again, this is just a partial list of possible terms. Each one is drafted to accomodate your own particular circumstances.
Page 13 If you or your partner are planning to have or already have children, and either of you has not legally adopted one or more child, you can try to safeguard your rights to continue to parent the children in the event of death or breakup with several key documents:
In addition to preparing these legal papers, it can help to jointly discuss your dual parenting arrangement with all workers in contact with your children (teachers, medical workers, etc.). Fortunately, many states now allow same-sex couples the opportunity of accepting joint custody of their children through second-parent adoptions. These are legal proceedings in which both partners are appointed parents of an adopted child, or in which the custodial parent agrees to share custody of the child. These are permanent arrangements that can offer long-term security for both parents and children. If you and, your partner are planning to have a child using a private sperm donor, you might consider making a written agreement with the donor to clarify the arrangements you have agreed to. In particular the agreement might record the arrangements you have agreed to about the involvement, if any, the donor is to have in the life of any child conceived by use of their sperm and your respective rights and responsibilities in relation to that child. Why make a donor agreement if you are using a friend or family member as a sperm donor? Courts often must adjudicate disputes between donors and parents or co-parents about whether the donor should have contact with the child or children conceived with the donor's sperm. To make determinations as to the intentions of the parties prior to the sperm donation, courts will look at a written agreement describing the rights and obligations of each of the parties to assist in "avoiding, preempting and resolving inter-personal disputes" in relation to a child. In short, Donor Agreements assist courts by providing a written record evidencing the intention of all the parties. The possible terms to include in a donor agreement:
This is not a complete list of options. You can include whatever provisions you consider relevant and important to your own situation!
Page 14
IV. CREATE YOUR ESTATE PLANNING DOCUMENTS
The decision to use or not use an attorney is an individual decision and should be based on several factors. You are more likely to need an attorney if you have a complex personal, financial and/or business life. For example, if you have an estate that is valued at more than $1,000,000.00 or if you are involved in a battle for child custody you may want to consult with an attorney. Many people simply feel more comfortable if their documents are prepared by an attorney.If you want to use an attorney but are not sure how or where to locate someone who is gay or gay friendly, contact your local LGBT organization or community center and ask for a referral. Rainbow Law also offers an attorney locator service on our online Directory at www.RainbowLaw.org/html/direct ory.htm and look for the link to your state. If you need more information, drop us an email at This e-mail address is being protected from spambots. You need JavaScript enabled to view it or call (800) 891-8189. Only you can determine which method is best for you and your partner. The most important thing to remember is that you must put your wishes in writing if you want to protect your rights and the rights of your loved ones. Otherwise you leave yourself and your family vulnerable to unsympathetic laws and judges. You also need to remember to create your Estate Planning documents so that they address the unique issues facing same-sex partners!
Page 15 V. SIGN YOUR DOCUMENTS
Any person named as a beneficiary, successor trustee, agent, proxy, or attorney-in-fact should NOT witness or notarize your documents. Page 16 VI. AFTER YOU SIGN
2. Where to Keep Original Documents. Once your documents are signed and copies made, put the originals in a large freezer bag and place them in the freezer section of your refrigerator -- it is easily accessible and fire resistant. It is unwise to keep your originals in a safe-deposit box. If your agent or Successor Trustee does not have access to the key, or something happens to you during a long bank holiday, your agent may not be able to act for you until it is too late. 3. Make sure you tell your agent where your documents are stored!
Page 17 VIII. What is Probate and Why Should Same-Sex Couples Avoid It?
Generally, probate is a legal process in which your property is identified, inventoried, and distributed to your heirs after your death. There are three important reasons you want to avoid probate: 1. It is often expensive. 2. It may be time consuming and tie up assets for a long time. While the estate is going through the probate process, a lack of liquidity (cash flow) can create problems for your successor trustee/executor and/or beneficiaries. They may need to pay your mortgage or other debts, or keep your business running. They may need ready cash and run into difficulty because they cannot liquidate (sell off) assets before the probate is complete. An average probate can take 12 to 18 months and may result in severe financial problems for your partner, your and your business. 3. The probate process can involve many visits, letters, and phone calls between attorneys and your successor trustee/executor, and can place a physical and emotional burden on your family. The grieving process is difficult enough without the bother and disturbance that is often involved in probating an estate. Most people are aware of "probate" but do not know what it means. Especially in view of what is written in the popular media, most people want to avoid the hassle, time, and costs of this process. For those of you who want to learn more -- MUCH more -- about probate, its purpose, the steps involved, etc., read the following and enjoy. For everyone else, it's time to stop procrastinating and GET ALL YOUR DUCKS IN A ROW! Page 18
A Probate Primer!
Believe it or not, Probate was not designed as a form of employment security for attorneys! The probate process can be avoided, but most people do not take the time or effort to understand what probate is and how they can stay out of it. Probate is a legal process whereby a court validates the deceased person's will or determines that he or she died without a will. The court also appoints someone to handle the decedent'sA person who has died assets and pay the bills owed at death. That someone is referred to as an executor, administrator, or administrator with the will annexed, depending on the circumstances. An additional purpose of probate is to see if anyone was owed money at the time of death that creditor can come forward and make a claim to receive payment. There is a fixed period of time for creditors to come forward and demand payment. Along with the payment of debts, the probate process is designed to see that taxes are paid. Income taxes for the personal income tax return up to the date of death must be paid. Income collected during probate requires the filing of a separate estate income tax return and the payment of tax. If the decedent owned over $1,000,000 of assets at the date of death a federal estate tax return is required and the tax due must be paid within nine months of the date of death. Lastly, after all assets of the decedent are collected, assets are sold and taxes and debts are paid, then the executor or administrator must distribute the remaining assets in accordance with the decedent's will or the rules of intestate succession, if the decedent died without a will. Assets Subject to Probate Process While not all assets that the decedent owned are subject to probate, the following assets are subject to the probate process:
Some state’s laws provide that a probate is not necessary if the total value at the time of death of the assets, which are subject to probate, does not exceed the sum of $100,000. There is a simplified procedure for the transfer of these assets. The $100,000 figure does not include vehicles and certain other assets. Assets not Subject to Probate As mentioned, not everything is subject to probate. Even though there may be a probate for a portion of assets owned, the following assets are not subject to the probate process:
STEPS INVOLVED IN THE PROBATE PROCESS When someone dies, the first question is whether there will be a probate proceeding. If all of the assets are in a living trust or joint tenancy, then the answer will be no. If the deceased person has more than $100,000 of assets in his or her name alone and there is no surviving legal spouse or partner or the assets were not left to the spouse or partner, the answer will be yes. If it is necessary to have probate, the second question is who will act? If the decedent left a will, he or she named someone in the will as executor. That person or persons does not have to be a United States citizen or resident. A friend may serve, the person's three children may serve jointly, or a bank or trust company may serve. No one has to serve if named. Will the person or persons agree to serve? If there is no will then the nearest relative or relatives have the first right to serve or to nominate someone if they do not wish to serve. If there is no will, the person appointed by the court is called an administrator. Occasionally, someone will die with a will, but the will does not name an executor or the person named is deceased or will not serve. Or possibly a bank is named and the bank declines because the estate is not large enough for the bank. The court then appoints the nearest biological relative who inherits under the will. That person is referred to as an administrator with the will annexed. All of the above do the same duty once they get appointed even though their title varies depending upon the circumstances. Appointment by Court To start the probate process it is necessary to file a petition with the superior court in the county where the deceased person lived at the time of death. This petition is set for hearing approximately 30 days after it is filed with the court. If there is an emergency and it is necessary for someone to act within the 30-day period, it is possible to get someone appointed within 24 hours as a "special administrator." This person handles estate assets until the executor or administrator gets appointed. If the decedent was the only signer on a business bank account and salary and other bills have to be paid immediately, a special administrator can be appointed. After the petition is filed, a notice of the court hearing must be published three times in a local newspaper. In addition, a notice of the court hearing must be mailed at least 15 days prior to the hearing to everyone named in the will, all of the deceased person's heirs at law (those people who would inherit if he or she died without a will), and any other alternate executors named in the will. If the will had special wording at the end of it where the witnesses sign, then it may be "self-proving" and no additional statements are necessary. If the will is not self-proving then a statement must be obtained from one of the witnesses to the will. If a witness cannot be located, then there are several alternative ways of proving the will. If the will is handwritten, anyone who is familiar with the decedent's handwriting can sign a statement proving the will. If the will does not waive a surety bond, then the executor or administrator must post a surety bond. The surety bond is nothing more than an insurance policy which insures the estate if the executor or administrator does something improper or steals from the estate. Unfortunately the premium of approximately $200-800 is paid out of the estate assets. At the court hearing if everything has been done and there are no objections, the court will admit the will to probate and appoint the executor or administrator. After the appointment the executor or administrator must file a special form with the court titled "letters testamentary" or "letters of administration." This is signed by the person, and he or she agrees to act as executor or administrator. Later, when taking legal action or transferring assets, other parties will want a certified copy of these "letters" showing that the person has the legal authority to act. These "letters" usually cost less than $10 per copy. Collecting Assets After the appointment the executor or administrator must take possession of all of the decedent's assets subject to the probate process. Assets in joint tenancy, assets in a living trust or assets subject to a beneficiary designation are not part of the probate and are not collected. The executor or administrator needs to change title to the assets and to put these assets in his or her name as executor or administrator. Mutual funds, stocks and bonds, brokerage accounts, bank accounts, real property, vehicles and other assets should be changed over. After collecting all of the assets, it is necessary to prepare an inventory listing these assets. At the time that the executor or administrator was appointed the court also appointed a "Probate Referee." This individual has the responsibility of valuing all of the non-cash items with the fair market value as of the date of death. The referee receives a fee of $1 per $1000 for the value of the assets appraised. The value is the gross value excluding any loans or liens on the assets. If the home is valued at $300,000, even though there is a $180,000 mortgage on this home, the referee values it at $300,000 and receives a $300 fee for this. There are legal procedures for contesting the referee's value if someone does not believe it to be accurate. The appraisal of all of the assets is supposed to be filed with the court within four months of the executor's or administrator's appointment. Payment of Bills and Debts As soon as the executor or administrator is appointed by the court and obtains money, bills can be paid. Funeral, utility, credit card and other bills can be paid without any special legal formality. Anyone can be required to submit a creditor's claim in the estate. This is a special court form, which must be completed by the creditor and approved by the executor or administrator. If the executor or administrator wants this form submitted by a creditor then a notice must be sent to the creditor. Claims normally must be submitted within four months of the executor's or administrator's appointment. There is an exception if the creditor was not aware of the death. If that occurs, the creditor can petition the court after the four-month period for submitting a claim. The petition cannot be filed later than one year after the executor's or administrator's appointment. If the executor or administrator rejects a creditor's claim, the creditor must file a lawsuit within three months of the rejection or lose all right to later sue. Before a lawsuit can be filed, the creditor must file a claim. If John Doe is in an automobile accident and dies and other parties wish to sue his estate, they must file a creditor's claim within the required period before they can file a lawsuit. Most estates do not involve any creditor's claims. The executor or administrator pays the outstanding bills and no one objects. Sale of Estate Assets It may be necessary or practical to sell some or all of the estate assets. Assets may have to be sold to pay taxes, fees and debts. Or the home may be vacant and the children do not wish to inherit it, so it is sold during probate. There are two methods of selling assets in a probate proceeding, which the executor or administrator may chose. First, court approval may be obtained before any asset is sold. If the stocks or bonds are sold, a court order is necessary before selling them. If real estate is sold, a court hearing must be held and anyone may offer a higher price for the property in court and take it away from the original buyer. Second, in some states, the executor or administrator may sell assets. The only requirement is to give written notice to any beneficiary who is affected by the sale at least 15 days before the proposed date of sale. If no one objects, then the sale may proceed. If someone objects, then the court must be petitioned for approval the same as alternative number one, above. After appointment, the executor or administrator usually prepares a budget with an estimate of the federal estate tax, fees for the executor and attorney, administrative costs, cash bequests under the will, and debts or claims. If there is insufficient cash available, then a decision must be made as to what assets to sell. If there is sufficient cash available, then a decision must be made as to whether any assets such as the home should be sold. Once the decision is made to sell assets, the executor or administrator should proceed with the sale. It makes little sense to allow the home to remain vacant for nine months and then put it on the market for sale. If the home is going to be sold, there seems little reason why it should not be marketed within 30 days of the appointment. PAYMENT OF TAXES The executor or administrator is liable to see all of the taxes due the state and federal government are paid. While she or he is not normally personally liable, her or his liability does extend to the assets that are in probate. If the executor or administrator distributes assets and the Internal Revenue Service or State Tax Board assesses a deficiency, she or he is liable for the value of the assets distributed. One immediate concern is who will handle all of the tax work involved? It can be the executor or administrator if the person is skilled enough to do so. Or, it may be the attorney. More likely it will be the tax preparer, enrolled agent or certified public accountant who handled the decedent's tax matters prior to death. Whoever it is must be skilled enough to prepare and file all of the required tax returns. Prior to Death Income Tax Returns Even when someone dies, an income tax return has to be filed for the year of death. Mary Doe dies on July 21st. An income tax return will be required from the first of the year until the date of death-January 1st-July 21st. The return is due by April 15th of the following year. Only the income received and any deductions paid through the date of death will be reported on the return. Income such as dividends and interest received after the date of death will not be reported on the return but will be picked up on the estate income tax return, or by the surviving joint tenant if the asset was in joint tenancy. Any medical deductions on the decedent's part paid within one year of the date of death may be deducted on the final return. All other deductions must have been paid before death to be allowable.Estimated income taxes paid for the year of death should be reviewed. Depending upon the date of death, it may not be necessary to continue to make estimated payments after death. The decedent's income tax returns for the four years prior to death should be retained, and the return for the year prior to death should be carefully reviewed to be sure all items of income and deductions are picked up. If the decedent died after January 1st but before April 15th or even later, a return may still be due for the prior year. With extensions, it is possible to file your income tax return as late as October 15th for the prior year. If the return has not yet been filed, an extension can be requested and will usually be granted. Fiduciary Income Tax Returns Income that comes in after the date of death is not reported on the decedent's personal income tax return. If the interest, dividends or other income are paid to the estate, they must be reported on the fiduciary or estate income tax return. A separate tax identification number is obtained for the estate and used in lieu of the decedent's social security number. A separate income tax return, called a fiduciary tax return, is filed annually for the estate. This form lists the taxable income such as dividends, interest, capital gains and net rents. The fiduciary return also takes off the allowable deductions such as mortgage interest, legal and executor's fees, taxes, and a few other deductions. The tax return does not have to filed on a calendar year basis, as of December 31st. It can be filed on a fiscal year basis at the end of any calendar month. Once a fiscal year is picked, the return must be filed within 3-1/2 months of the end of the tax year. At the end of the tax year if the estate has not been closed and distributed, the tax is then paid on the net income. That income is later distributed to the beneficiaries of the estate without additional tax. If the estate has been distributed during the tax year, the tax is not paid on the net income, but instead each beneficiary must list his or her proportionate share of the taxable income on his or her personal tax return. Fiduciary tax returns are required until the estate is closed and distributed. If the estate is open for more than two tax years, estimated fiduciary taxes must be paid each year. Other Taxes Other taxes may also be due. State real estate taxes and/or sales tax may be due if there is a business selling some product. If the decedent made a gift of over $11,000 to someone during the year of death, a gift tax return may be due. If there is real property in another state or country, it may be necessary to file a separate income tax return for the income in that state or country. Liability for Taxes As previously mentioned, the executor is liable for taxes if assets are distributed and additional taxes are later discovered to be due. Because of this, the executor or administrator will frequently request to be allowed to hold back some estate funds for a period of time as a reserve if additional taxes are due. This reserve may be kept for two to three years and then distributed without additional court order to the estate beneficiaries. The period of liability for taxes is normally three years for the federal government. This period is from the due date of the return or the filing date if it is later. CONCLUDING THE ESTATE After the estate assets have been inventoried, the period for filing creditor's claims has expired and all claims paid or resolved, the necessary assets sold, and all required tax returns filed and taxes due paid, then the estate can be distributed. To conclude the estate it is necessary to petition the court and to obtain a court order to make the distribution. The executor must either file an elaborate accounting listing all receipts and disbursements or obtain a waiver of the accounting from all of the estate beneficiaries. After the accounting is prepared or waived, a petition is drafted which is a summary of the estate and the actions taken. This petition lists the assets currently on hand and the proposed distribution of these assets. The fee that the executor or administrator and the attorney receive is computed and shown. If everything is in order and there are no objections, the court will issue an order concluding the estate, ordering the fees paid, and the assets distributed. Once the court order is obtained, checks may be written and assets reregistered in the names of the estate beneficiaries. After the assets are distributed a receipt for these assets is obtained from each estate beneficiary and filed with the court. As previously stated, if the estate is relatively simple and no federal estate tax is due, it can be concluded in 6-9 months. If there is an estate tax due, the period will likely increase to 12-15 months. The estate should not be in probate for more than 18 months unless there is litigation or significant problems that prevent distribution. |
| Last Updated on Wednesday, 03 March 2010 20:09 |
