Monday, January 29, 2007

Another Hidden Cost of Dying - The Surety Bond

Category: Estate Planning, Probate and Estate Administration

A spot-on examination of the requirement for a surety bond in an estate administration from Joel Schoenmeyer, Esq. at Death and Taxes Blog.

On the Subject of Surety Bonds: "Surety bonds are like an insurance policy for an estate and its beneficiaries. What are you insuring? That the executor or administrator isn't going to run off to Tahiti with the estate's assets."

I also use Tahiti as an example of where the nefarious fiduciaries are going with you money.

Surety bonds can be expensive and fall into the category of "things to be avoided". How to avoid the expense to your estate - create as will. As Joel points out in his posting: "The executor doesn't have to obtain one if the decedent's Will waives the surety bond requirement. If the Will DOESN'T contain such a waiver, or if the decedent died without a Will, the executor will have to make surety arrangements."

Also, if you have a Will, but don't have a named Executor or Successor Executor, you will also need a surety bond in NJ. This means that if your Will from 15 years ago names your spouse and then your father, who has since died, a codicil is in order at a minimum to name appropriate successor executors to avoid the bonding requirement.

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Tuesday, January 23, 2007

You Die - Your Passwords And User Names Die With You

Category: Estate Planning, Probate and Estate Administration

As part of every Estate Planning consultation these days, I ask not only "Where do you keep your assets" (ie: what institutions do you use for banks, brokerage accounts) but "How do you access your assets?" The point of the second question is to find out if the client takes advantage of electronic account access, and if so, who else shares access to those accounts.

I was reminded for the importance of this from the article: - When Passwords And User Names Die With The User: "Security experts warn us to keep our passwords and user names under lock and key. But what happens after a loved one dies? How do survivors get access to information and documents kept squirreled away in safe deposit boxes and hard drives for years?"

The questions is even more prevalent when there is no hard data. Many people don't receive paper account statements and only access bank and brokerage accounts online. Or there are direct deposit or direct withdrawals set up only online. In this case, an executor may not even know about the assets until a tax statement comes in January, or by running an escheated asset search (escheated assets are assets that are turned over to that state if the institution can't find the owner).

First, the motivation for taking the steps below is avoiding the alternative - going to court for an order to get access to the accounts (if your executor even knows where the accounts are).

The best way to address concerns raised by assets in the electronic age from an estate planning and estate administration perspective is to employ some practical advice:
  • Each spouse keeps a spreadsheet of Institution Name, Website, Account Number, User Name, Password
  • The spreadsheet is updated WHENEVER a change is made
  • Save the spreadsheet to a removable media format (CD, DVD-R, USB Flash-Drive, etc).
  • Save the removable media format in a safe location that your spouse, power of attorney, key adult child(ren) and attorney are aware of (safe deposit box, fireproof vault, drawer in the house where the important stuff is)
  • If you password protect the file, you need to make sure that your spouse, power of attorney, key adult child(ren) and attorney are aware of

If putting all this in a safe place and telling key people of it concerns you because the key people have access to your accounts, you need to rethink the key people.

MOST IMPORTANT - If you make any changes to the information on the spreadsheet, update the spreadsheet and put in back in the safe (but well communicated) location.

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Monday, January 22, 2007

Famous Deaths - Infamous Litgation over Who gets What (and how much)

Category: Probate and Estate Administration

Courtesy of Juan Antunez, Esq. of Florida Probate Litigation Blog (with a thanks to Phil Bernstein, Esq. at the New York Probate Litigation Blog for mentioning the post on his blog):
An AP article entitled Family Feuds Follow Famous People After Death has fun rounding up all the latest celebrity probate cases in one nice package. I've written about some of the cases mentioned in the linked-to article (James Brown, Billy Graham), noted two celebrity cases not mentioned in the article (Jimmy Hendrix, Celia Cruz), and was amused to find bits of probate gossip I'd missed (Ted Williams, Peter Lawford, Marlon Brando, Ray Charles).

Thursday, January 11, 2007

Create a Will instead of a Role for "Probate Genealogists"

Category: Estate Planning, Probate and Estate Administration

I just came across this press releaseGrowing Role for Probate Genealogists and thought to myself, "What is a probate genealogist?" not having heard the term before. Looking into it more, it seems that "probate genealogist" encompasses "heir-search" companies that identify to heirs to an estate through their biological relationships.

In my practice, finding heirs has been an issue on several occasions - all of which had one thing in common - the person who died had assets and no Will. These people died intestate (without a Will), and the assets were distributed to relatives per the New Jersey intestacy statutes (otherwise known as "the Will the State of New Jersey created for you that you didn't know about").

I am surmising that needing to use a "probate genealogist" is an expensive process. It also implies that you have no idea who will be receiving an inheritance from you, because if they were known to you, they would probably know you were dead and could claim their rights without being "located" by a third party.

Taking the time to make a Will seems like such a simpler and more logical alternative. Some things to consider in this example:
  • If you don't make a Will, the State where you reside has one for you via its Intestacy Statues
  • The Intestacy Statutes may give you assets to people you either don't know (remote relatives) or don't like (close relatives)
  • You are not required to give your money to your relatives - you can leave it to a friend, church, charity, organization, or even your pet in many states.
  • You worked hard to create your assets - shouldn't you make the effort to direct where they go if you aren't here? I have never come a across a person who truly "didn't care" where there assets went after being asked a few questions.

Monday, July 10, 2006

Attorney-In-Fact Under POA can make Gifts - If Gifts are as Contemplated in Will (NY)

Category: Estate Planning, Probate and Estate Administration

What happens when a person creates a Will and a Power of Attorney, and the person named under the Power of Attorney uses the Power of Attorney to make gifts to himself, and those gifts effectively change the testamentary scheme set out in the Will? In New York, a new ruling by the Appeals Court (the highest court in New York State) says that those gifts won't stand, regardless of a broad gifting power granted in the Power of Attorney, unless those gifts (1) are in the principal's best interest, and (2) conform to the principal's overall estate plan. In the Matter of Ferrara (N.Y., No. 92, June 29, 2006).

In New Jersey and New York, you need to specifically give your attorney-in-fact the ability to make gifts to himself or herself. This is commonly done by adding a paragraph the the Power of Attorney as the attorney-in-fact is usually a family member who gifts might be made to in any event (ie: a spouse or child). In my form of document, I have for years had language that the attorney-in-facts gifts must conform with the principal's estate plan precisely to avoid the mis-use of the power of attorney described in In the Matter of Ferrara. My thought is that the use of gifting powers within the Power of Attorney is necessary and desireable, as it is impossible to judge now how you may want to distribute your assets in the future (look at the DRA changes in the Medicaid law in 2006). However, it is also reasonable to limit the gifting of assets to be in the context of the the estate plan that you already have in place, so as not to allow a person's goals at death to be defeated merely by giving flexibility to use your assets as you would during life.

In 1999, George Ferrara executed a will bequeathing his entire estate to The Salvation Army. In 2000, Mr. Ferrara, who was single and had no children, signed a durable power of attorney called the "New York Statutory Short Form" appointing his brother, John, and a nephew, Dominick Ferrara, as his attorneys-in-fact. Mr. Ferrara initialed a typewritten addition to the form that enabled the attorneys-in-fact to make gifts to themselves without limitation. Dominick claims that this provision furthered his uncle's wishes that Dominick have all his assets. Mr. Ferrara died three weeks after executing the power of attorney. During those three weeks, Dominick transferred about $820,000 of Mr. Ferrara's assets to himself.

After learning of Mr. Ferrara's will, The Salvation Army began proceedings against Dominick to recover the assets. The trial court dismissed the petition, ruling that the presumption of impropriety when an attorney-in-fact makes self-gifts had been eliminated by changes to New York's laws in 1997. General Obligations Law § 5-1502 and 1503. The new law directs that an attorney-in-fact is authorized to make annual gifts of $10,000 or less to specified beneficiaries, but may do so only for purposes reasonably deemed to be in the principal's "best interest." The law also allows for additional language to be added permitting unlimited gifts. The trial court held that the best interest limitation does not apply to this additional language. The Appellate Division affirmed and The Salvation Army appealed.

The Court of Appeals of New York, the state's highest court, reverses. The court finds that nothing in the law suggests that the best interest requirement is waived when additional language increases the gift amount or expands the potential beneficiaries. "The Legislature intended [the relevant section] to function as a means to customize the statutory short form power of attorney, not as an escape-hatch from the statute's protections," the court writes. The court goes on to rule that "best interest" does not include the kind of unqualified generosity to the holder of a power of attorney practiced by Dominick, "especially where the gift virtually impoverishes a donor whose estate plan, shown by a recent will, contradicts any desire to benefit the recipient of the gift."

Tuesday, June 20, 2006

Failure to Exercise Spousal Right of Election a Transfer for Medicaid

Category: Elder Law, Probate and Estate Administration

A new New Jersey ruling affects estate plans where one spouse leaves assets to another spouse in a testamentary trust, and the surviving spouse then needs to apply for Medicaid for his or her long term care needs. The case is I.G. v. Department of Human Services (N.J. Super. Ct. App. Div., No. A-0006-05T5, June 13, 2006).

In New Jersey, a surviving spouse has a right to an "elective share" of a deceased spouse's estate. The "elective share" statute, N.J.S.A. 3B:8-1 to -19, essentially provides that the surviving spouse must receive 1/3 of the "augmented estate" of the deceased spouse. The "augmented estate" is defined to include both probate and certain non-probate assets (to prevent a person from disinheriting a spouse by merely ensuring that all assets pass to a non-spouse via a non-probate vehicle, such as joint ownership or the use of a beneficiary designation). Per N.J.S.A. 3B:8-1 the "'augmented estate' consists of the value of all property of both the deceased and surviving spouse as well as other property transferred to third parties without adequate consideration before the decedent's death."

What happens from a Medicaid perspective if (1) the first spouse's will leaves everything in a trust to the surviving spouse, and (2) the surviving spouse does not make an elective share claim?

According to I.G. v. Department of Human Services, the failure of the surviving spouse to make an elective share claim is a "transfer" for Medicaid purposes. The court found that the failure to elect the elective share was a transfer of an amount equal to 1/3 of the deceased spouse's estate.

What is the effect of this case?

First, if your estate plan calls for all your assets to pass into a discretionary trust for the benefit of your spouse, or if you disinherited your spouse altogether, in the hopes of shielding assets in the future from a Medicaid spend-down, you need to re-examine your plan as it likely will not meet your goals.

Second, if a surviving spouse (or his or her fiduciary if he or she cannot act) fails to seek the elective share, this failure to act will (1) create a penalty period, during which the surviving spouse will not qualify for Medicaid, and (2) that penalty period will come into effect at the time when (a) the surviving spouse has exhausted all of his or her assets outside the trust, and (b) the surviving spouse is in a nursing home. The elective share claim must be made within 6 months from the date of death.

Monday, June 05, 2006

Medallion Guarantee of Stock Certificates - A Good Thing, But to be Avoided

Category: Estate Planning, Probate and Estate Administration

Have any stock certificates? Real ones, on the fancy, colorful paper? If so, at some point you, or your Personal Representative (Power of Attorney, Executor, Trustee, etc.) will need to deal with having those stock certificates "Medallion Guaranteed" in order to sell or transfer them.

According the Securities and Exchange Commission article “Signature Guarantees: Preventing the Unauthorized Transfer of Securities":

If you hold securities in physical certificate form and want to transfer or
sell them, you will need to sign the certificates or securities powers. You
will probably need to get your signature "guaranteed" before a transfer agent
will accept the transaction. Although it's an inconvenience to get your
signature guaranteed (emphasis added) the process protects you by making it
harder for people to take your money by forging your signature on your
securities certificates or related documents. Transfer agents insist on
signature guarantees because they limit their liability and losses if a
signature turns out to be forged. One way to avoid having to get your signature
guaranteed is to have your securities held in street name, meaning that your
securities are held in the name of your brokerage firm instead of your name
(emphasis added).

An investor can obtain a signature guarantee from a financial institution –
such as a commercial bank, savings bank, credit union, or broker dealer – that
participates in one of the Medallion signature guarantee programs.

A Medallion imprint or stamp indicates that the financial institution is a
member of a Medallion signature guarantee program and is an acceptable signature
guarantor. By participating in the program, financial institutions can guarantee
customer signatures with the assurance that their guarantees will be immediately
accepted for processing by transfer agents.

Transfer agents can refuse to accept a signature guarantee from an
institution that does not participate in the Medallion program or that is not
recognized by the transfer agent. While guarantor firms can charge a fee for
their services, they often don't and offer them as part of their customer

While getting stock certificates Medallion Guaranteed may not be impossible, it is a hassle (the SEC actually calls it an “inconvenience” in the article) – especially when you are not the owner, but the owner’s fiduciary (executor, trustee, attorney-in-fact, etc.). More importantly, it is a hassle that can be very easily avoided by taking all your stock certificates to a broker and turning them over into a brokerage account. The discount broker fees are very small. You are not giving up any control. You are gaining a huge amount of convenience (to buy and sell yourself without getting a Medallion Guarantee) as well as giving a “gift” to your fiduciary by making your estate infinitely easier to manage. Also, if there is a fire or other disaster, your brokerage accounts won’t disappear, but your stock certificates might. If you aren’t here to have them re-issued, those assets may never pass to your family.

Tuesday, May 02, 2006

Probate Myths Debunked

Category: Probate and Estate Administration

I am really not quite sure why "probate" has gained a reputation as a such a bad word in estate planning. This article from the Florida Bradenton Herald - There are two major advantages of living trusts - is a prime example of bad information about probate being promulgated as fact:

"Also, except for very small estates, probate court proceedings are usually required when a person dies without a will, thus delaying distribution six to 18 months, and often longer.

Another reason to avoid probate court proceedings is state law determines the attorney and administrator fees, ranging from 6 to 22 percent of estate assets. However, these fees are negotiable so don't hesitate to negotiate if you are an estate heir."
These statements are just plain not true, particularly in New Jersey, and I suspect in other states.

First - Probate is the start of the estate administration process. In New Jersey, it generally involves (1) offering the Will to the Surrogate, (2) offering identification to the Surrogate that (a) you are the person named executor, or (b) that if there was no Will, you are the person who has the right to administer the estate under state law (first the surviving spouse, and then the adult children). That's it. The Surrogate then issues you Letters Testamentary (in the case of a Will ) or Letters of Administration (if there is no Will) and off you go empowered to administer the estate. This can all be accomplished in a 1-2 hour meeting at the Surrogates office - it does not take months, or even days.

What does take many months (or even years) is the Estate Administration Process. This is separate from Probate, and needs to be gone through whether you die with a Will, with no Will, or with a Revocable or Living Trust. The Estate Administration Process involves (1) gathering all the assets of the estate, (2) paying any liabilities of the estate, (3) calculating and paying taxes, (4) waiting for the tax calculations to be accepted by the authorities, and (5) finally making a distribution of the assets of the estate.

Second - In New Jersey, it is ILLEGAL for an attorney to charge a legal fee on the basis of a percentage of the estate. The legal fee must be reasonable to the work involved. Even in states where there is a statutory percentage fee, it is true that the executor or administration (not the heirs) can enter into a different percentage with your attorney. However, I don't know of any statutory fee of 22% of the estate, since this is higher than most states estate tax rate.

Monday, May 01, 2006

Supreme Court Says...Anna Nicole Smith gets another Shot at Hubby's Estate

Category: Probate and Estate Administration

I have previously written about the probate issues being raised by the unlikely source of the notorious Anna Nicole Smith, which the White House backed at the Supreme Court level (see Marshall v. Marshall - Or, Anna Nicole Smith Goes to Washington for the legal issues at bar) Today, a unanimous Court finds in favor of the blonde.

From Yahoo News: Supreme Court Backs Ex-Playmate's Effort:

"The Supreme Court ruled Monday that one-time stripper and Playboy Playmate Anna Nicole Smith could pursue part of her late husband's oil fortune.

Justices gave new legal impetus to Smith's bid to collect millions of dollars from the estate of J. Howard Marshall II. Her late husband's estate has been estimated at as much as $1.6 billion.

Smith has been embroiled in a long running cross-country court fight with Marshall's youngest son, E. Pierce Marshall. The court's decision, which was unanimous, means that it will not end anytime soon.

Justice Ruth Bader Ginsburg, writing for the court, said Smith should have a fresh chance to pursue claims in federal court. "

"At issue in the legal battle was competing court jurisdiction. A Texas court held a five-month trial before deciding that Smith was entitled to nothing from Marshall's estate. Smith brought a separate claim in federal court in California."

Justices said Monday that the 9th U.S. Circuit Court of Appeals was wrong in ruling that federal courts could not handle Smith's case. "

Thursday, March 02, 2006

Marshall v. Marshall - or Anna Nicole Smith goes to Washington

Category: Probate and Estate Administration

From the Los Angeles Times:

"For much of her adult life, [Anna Nicole Smith, whose real name is Vickie Lynn
Marshall] sought the limelight. She was a 24-year-old topless dancer when she
met [billionaire J. Howard] Marshall; the oil tycoon proposed marriage a week
later. They wed in 1994, but he died a year later - leaving an estate estimated
at $1.6 billion.

Since then, [Anna Nicole] has been locked in a bitter legal battle with E.
Pierce Marshall, 67. At one point, his father's will had named him the sole
heir. But after Vickie Lynn and J. Howard Marshall married, the oilman ordered
his attorneys to draw up a trust that left her half of his assets.

The legal dispute grew more complicated when Vickie Lynn Marshall filed for
bankruptcy protection in California in 1996. Normally a federal bankruptcy court
can claim 'exclusive' control over all financial matters affecting the filer.
When a bankruptcy judge in Orange County took up the case, he ruled for Marshall
and said she was entitled to the money promised in her late husband's trust.

However, the Supreme Court has said that state courts should have
exclusive control over deciding wills and settling estates. E. Pierce Marshall
contended - and the U.S. 9th Circuit Court of Appeals agreed � that the will
should be decided in a Texas state court, not a federal bankruptcy court. That
legal dispute prompted the Supreme Court to take up the case.

But for the identity of the petitioner, the argument in Marshall vs. Marshall probably would have been held before a half-empty courtroom. "

See the entire Los Angeles Times Article

And one point of irony and interest from a similar article in the New York Times (Registration Required): "One question that may go unanswered is how J. Howard Marshall II left his affairs in such apparent confusion. He was not just an oilman. He was a lawyer — a professor of trusts and estates at Yale Law School."

Thursday, February 09, 2006

Looking for the Perfect Valentine's Day Gift - Create A Love Drawer

Category: Estate Planning, Probate and Estate Administration

Now, before you get thinking "those" thoughts, a "love drawer" here is not what you might think. It is a catchy term for giving your family the gift of having all your financial records in one place, and letting them know where that place is.

From CBS News Setting Up A Love Drawer February 7, 2006�13:34:28: "Still looking for that perfect Valentine's Day gift? Presents like candy, flowers or jewelry are always nice - but financial author and radio host Dave Ramsey tells The Early Show co-anchor Rene Syler that a real gift of love can be giving your family peace of mind in case something happens to you.

Ramsey has come up with a concept he calls the 'love drawer.' It's a place where you keep together important documents, such as wills, insurance and financial information.

'It's an ideal Valentine's Day gift if you're smart enough to put chocolates and roses with it,' Ramsey jokes. 'It's an ideal gift. When you're a real man, a real woman, the way you say 'I love you' to your family is you're prepared. You've got your act together if something happens to you. "

The need for a "love drawer" is very real. In assisting a family with administering the estate, sometime the most difficult part of the process is finding out what the deceased person had. Not to be facetious - but given the nature of an estate administration, you can't exactly ask the person "where is your original will??". Not only is this frustrating, but can be very costly in terms of increased legal fees (if a copy of a will needs to probated for example, or the time spent tracking down whether or not an asset even exists before a date of death value can be obtained) as well as increased expenses (banks and brokerage houses charge for having to go back through their records when you don't have them).

So consider setting up a "love drawer". In there should be copies of:
Living Will.
  • General Durable Power of Attorney.
  • Last Will and Testament.
  • And all Trusts created by you, where you are a Trustee, or where you are a beneficiary
  • Last years statement for all bank accounts, investment accounts, annuities, IRA's, 401(k), life insurance (basically, anywhere you have assets).
  • Any stocks or bonds you hold in certificate form. To do your family a real favor, transfer those stock certificates to a brokerage account.
  • A list of your advisors and their contact information, including your attorney, accountant, financial planner, investment advisor, insurance agent.
  • Your burial wishes.
  • A list of who should get what personal property.

So give a little love this Valentine's Day season.

Wednesday, January 25, 2006

Unlikely Connections - Bush Administration, Anna Nicole Smith, and the Supreme Court

Category: Probate and Estate Administration

Anna Nicole Smith will be getting some help as she takes her fight to gain part of her late husband's estate to the Supreme Court - the Bush Administration. The dryly named case of Marshall v. Marshall, Docket No. 04-1544, has the ability to affect the course of probate proceedings across the country in terms of appealing state probate court decisions to federal court. Of course, the nature of the litigants certainly make the case more spicy that your usual probate court or Supreme Court fare.

In the Smith case, much bandied about in the media, a Texas state probate court found that her husband's son, E. Pierce Marshall, was the sole heir to his father's estate, not Smith. When Smith appealed the ruling to federal court, a federal judge at the District Court level reversed the state probate court and awarded $474 million to Smith. This award was reduced to about $89 million, and then reversed again by the 9th Circuit Court of Appeals in San Francisco, which found that the state probate court decision should stand, thus leaving the entire estate to the son, and none to Smith.

Smith has taken her fight to the U.S. Supreme Court, which has scheduled arguments on the case for February 28. The narrow legal issue before the court is a question of federal versus state jurisdiction: when can federal courts can get involved in state probate proceedings? As stated in the Washington Post: At issue is the scope of the probate exception to federal jurisdiction. In other words, was a federal appeals court correct when it ruled last year that only state courts have authority over disputed estates?"

The Bush Administration has taken up the fight not necessarily in support of Ms. Smith, although clarifying points of law can make strange bedfellows, but to assert the jurisdiction of the federal court was proper in this case. Paul D. Clement, Solicitor General, has filed an amicus brief supporting the Bush Administration's position on the issue of federal court jurisdiction which is available here.

Thursday, January 05, 2006

One Trust, Two Trusts, Can you Merge Trusts?

Category: Estate Planning, Tax Law and Planning, Probate and Estate Administration

From the blog Rubin on Tax, a summary of PLR 200552009, issued December 30, 2005, discussing the tax consequences of two trusts with similar trust merging for administrative reasons (who wants to administer and pay administration expenses on 3 trusts when you can do it for just one?):

"In a recent Private Letter Ruling, the IRS provided that where several identical trusts combined into one trust with similar terms, and all the trusts held similar assets, the merger would not generate gain or loss to the trusts or their beneficiaries. The IRS further went on to provide that the tax attributes of the trusts merged into the new trust, such as net operating loss carryforwards and tax basis, would carry over to the new trust."

Note that a private letter ruling or PLR is only authority for that taxpayer, and cannot be relied upon by any other taxpayer. However, it is an example of the IRS's analysis of certain issues.

In doing estate planning, consider how well the distributive terms of any irrevocable trust you create, such as a life insurance trust or ILIT, match the distributive terms of your Will, or other testamentary document. To the extent that the trust terms for your children match, for example, then the Trustee may be able to combine the insurance trust with the trust created under your Will and only administer one trust per child. The key to being able to match these terms over time is to give someone a power over your irrevocable trusts to modify the distribution terms to the beneficiaries, so that as you modify your will over time, the trust terms can follow.

Thursday, December 29, 2005

Filial Devotion - or Forum Shopping to Control Mom's Assets? The Glasser Case

Category: Probate and Estate Administration

A fascinating real life tale of intrigue and twists as a New Jersey resident is whisked away to Texas and her assets, although she is still alive, are being fought over in court by her children - A Family Feud Sheds Light on Differences in Probate Practices From State to State - New York Times:

"Lillian Glasser, by all accounts, never intended to spend her twilight years in Texas. Or her $25 million fortune.

A lifelong New Jerseyan, Mrs. Glasser owned a million-dollar home and a second house in Highland Park, N.J., with her husband Ben, a doctor who died in 2002.

But to the consternation of Mrs. Glasser and the New Jersey authorities, Texas now has a major grip on her life and her money - a consequence of a family feud and anomalies in probate practices from state to state.

After coming to Texas last February to visit her daughter, Mrs. Glasser, now 85 and afflicted with Parkinson's disease and Alzheimer's, fell subject to the Bexar County Probate Court in San Antonio.

Placed under Texas guardianship after her daughter attested that her mother resided there, Mrs. Glasser is largely confined to a gated apartment complex in Alamo Heights, a small city surrounded by San Antonio, under 24-hour care and forbidden to return to New Jersey while a storm of litigation swirls around her. "

Some other interesting facts to add to the pot:

  • Mom's had a limited durable power of attorney that only became effective upon her disability or incompetence. Once the Texas probate court declared her incompetent, daughter was able to access mom's assets, which she did to move into joint name with her and mom (so she will receive them at death) as well as to pay for her children's education.
  • Middlesex County has sued that they have jurisdiction and issued an order at one point when Mrs. Glasser was in New Jersey that she could not leave - daughter "was not notified" of the order and took mom back to Texas
  • Mrs. Glasser says she wants to go back to New Jersey - but as often is the case with seniors, nobody really seems to care to bend to her wishes as quickly as possible

Wednesday, November 16, 2005

A Bonded Fiduciary - The Role of a Surety Bond in an Estate Administration

Category: Probate and Estate Administration

What does it mean for a fiduciary of an estate (Executor, Administrator or Personal Representative) to be "bonded"? A surety bond is a requirement that the Surrogate may set before Letters Testamentary or Letters of Authorization may be issued.

Wikipedia defines a surety bond as: "A surety bond is a contract between at least three parties: (i) the principal, (ii) the obligee, and (iii) the surety. Through this agreement, the surety agrees to make the obligee whole (usually by payment of money) if the principal defaults in its performance of its promise to the obligee. The contract is formed so as to induce the obligee to contract with the principal, i.e., to demonstrate the credibility of the principal."

In the case of the administration of an estate, (i) the Principal is the fiduciary, (ii) the Obligee(s) are the beneficiary(ies) of the Estate, (iii) and the Surety is the insurance company issuing the bond. The bond acts as a source of funds to compensate the beneficiaries if the fiduciary mis-manages the estate.

A surety bond will be required in those situations where (i) the Will does not have language wherein the testator waives the need for the executor to get a bond, (ii) there is no Will (an estate administration), (iii) where there is a will, but the named executors cannot serve (i.e.: the executor has died, and no successor is named under the will, and (iv) as otherwise required by the Surrogate.

The amount of the surety bond will depend on the total probate assets of the estate (those assets in the decedent's own name at the time of death). The Surrogate sets the bond amount, and evidence of the surety bond must be obtained before the Letters Testamentary or Letters or Authorization are issued, which allow the fiduciary to act on behalf of an estate.

The surety bonds generally are for a one year period, and must be kept in force until the estate is distributed.

Thursday, September 29, 2005

Selling Real Property from an Estate

Category: Probate and Estate Administration

A client recently called me under the misconception that she could not sell her deceased sister's condominium until that estate was finalized and all taxes were paid. She had found a buyer for the real estate and wanted to sell it as soon as possible.

Where an estate owns real property, the State of New Jersey has a lien on that property for any potentially unpaid inheritance or estate taxes. This lien may be removed by the issuance of Real Property Tax Waiver by the State, which is then filed by the County Clerk in county in which the property is located.

A Real Property Tax Waiver can be issued by one of two ways:

1 - If (a) all the estate beneficiaries are Class A (lineal ascendant and descendants, and your spouse), and (b) no New Jersey Estate Tax is due, then a Form L-9 can be filed affirming to the New Jersey Inheritance Tax Division that no tax is due. Upon processing, and Real Property Tax Waiver will be issued to be filed with the County Clerk.

2 - If an Inheritance Tax or Estate Tax is due, then the Real Property Tax Waivers will be issued together with a letter from New Jersey that it has accepted as correct all Inheritance and Estate Tax returns filed and payments made. This normally takes well over a year from the date of death, due to the time necessary to prepare and file the returns, and then have them reviewed by New Jersey.

What happens if there is a tax due and you want to sell the property before the Real Property Tax Waiver has been issued? As a practical matter, the buyer's title company will require that some percentage of the sale proceeds be held in escrow until the Real Property Tax Waiver has been issued. This does not prevent the sale, but instead creates a fund from which to pay the taxes. The escrow can be released either (1) to New Jersey or the IRS to pay taxes due, or (2) upon presentation of Real Property Tax Waiver.

Wednesday, September 21, 2005

Single and Don't Have a Will? New Jersey has one for you.

Category: Estate Planning, Probate and Estate Administration

In a follow-up post to Married and Don't have a Will? New Jersey has one for you, another reminder that "Surprise! If you don't make your own Will, the State of New Jersey has one for you. While this might seem like a generous thing, the question is whether the Wwill that New Jersey made for you matches what you would like done with your assets."

If you don't have a Will and aren't married, your estate will be divided as follows:

1. To your lineal descendants (your blood descendents) by representation (generally equally among your children; however, if one or more children have died, all of the grandchildren whose parents have died will share equally in what all the deceased children would have received);

2. If there are no surviving descendants, to your parents, or the survivor among them;

3. If there are no surviving descendants or parents, to your parents' descendants by representation (your siblings and their children);

4. If there are no surviving descendants, parents or descendants of a parent, but you are survived by one or more grandparents:

* 50% to: first, your paternal grandparents or the survivor; next, to the descendants of your paternal grandparents (your aunts, uncles and cousins on your father's side)

* 50% to: first, your maternal grandparents or the survivor; next, to the descendants of your maternal grandparents (your aunts, uncles and cousins on your mother's side)

5. If there are no surviving descendants of grandparents, then to your step-children or their descendants by representation.

6. If there is no such person, everything to the State of New Jersey (the ultimate beneficiary if you don't have a Will)

Friday, September 09, 2005

Savings Bonds (Part 2) - What Happens when the Bond Owner Dies?

Category: Estate and Inheritance Tax, Tax Law and Planning, Probate and Estate Administration, Financial Planning

Savings bonds are a ubiquitous asset. However, dealing with savings bonds as part of an estate can in many ways be more complicated then dealing with other investment assets, such as mutual funds, stocks and bonds, where a broker can coordinate transfer and liquidation efforts. In a prior post Saving Bonds (Part 1) - Learning More about those Bonds - I discussed resources to learn more about the value of any bonds. Here, we are looking at what to do with the bonds as part of an estate, or if you inherit bonds as a result of a person's death.

A few general rules, regardless of what series of bonds (E/EE, H/HH or I):

  • Single Ownership: If the savings bonds are owned by one person, and that person dies, the bonds are now owned by the person's estate. The executor, personal representative, or administrator, as the case may be, is the only person authorized to deal with the bonds after a person's death. This means that a probate proceeding will need to be opened so that a person is named by the court to liquidate or transfer title to the bonds.

  • Joint Ownership: If the bonds have co-owners, and one owner dies, the bond now belongs entirely to the co-owner. The co-owner may now liquidate the bond, change title to his or her own name, or change title to the surviving owner and another person of the owner's choosing.

  • Named Beneficiary: If the bond owner named a beneficiary to the bonds on the bonds (not through her will) then upon the bond owner's death, the bond ownership is automatically transferred to the beneficiary. The named beneficiary may now liquidate the bond, change title to his or her own name, or change title to the named beneficiary and another person of the beneficiary's choosing.

  • Estate Tax Consequences: Where the bonds are owned by one person (or by one person who names a beneficiary), 100% of the value of the bonds as of date of death is includible in a person's taxable estate. Where the bonds are owned by more then one person, there is a presumption that 100% of the value of the bonds is includible in the taxable estate of the first person to die. This presumption can be rebutted if the surviving co-owner actually contributed money to buy the bonds. The more likely scenario is that grandma bought a bond naming grandchild as co-owner with grandma's money. In this situation, 100% of the value of the bond on the date of grandma's death is included in her estate, even though she had a co-owner.

  • Income Tax Consequences: Interest income on bonds is generally reported only when the bonds are cashed, disposed of (note: a change of ownership is considered a "disposition" of the bonds and interest accrued to that date must be reported at that time), or reach final maturity. Unlike other types of investments, there is no "step up in basis" for savings bonds, and the accrued, but as yet untaxed income, must be reported as some point by the estate or the beneficiaries.

    If a person owned bonds in their own name with no beneficiary, reporting the interest on those bonds for federal income tax purposes is the responsibility of either (a) the estate if the executor, personal representative, or administrator as the case may be, redeems the bonds; or (b) the beneficiaries of the estate if the bonds are transferred to them as new owners, in the year in which they redeem bonds or the bonds reach final maturity.

    Where there is a co-owner or beneficiary named, the co-owner or beneficiary is the new owner and as such is required to include on his or her return interest earned on the bonds for the year the bonds are redeemed or disposed of (including re-registration by substituting a new owner for the original living owner) or the bonds reach final maturity, whichever occurs first. Alternatively, even when there is a surviving co-owner or beneficiary, the person filing the decedent's final 1040 has the option of reporting on that return all interest earned on the bonds to the date of death. This option might be used where a person on a low income tax bracket has died, leaving the bonds to a person in a higher tax bracket.

The Bureau of Public Debt, on the Treasury Direct website, has detailed articles specifically outlining how savings bonds are to be treated in the event of the death of a bond holder.

Friday, August 26, 2005

Savings Bonds (Part 1) - Learning More about those Bonds

Category: Elder Law, Estate Planning, Tax Law and Planning, Probate and Estate Administration, Financial Planning

Many people have invested in saving bonds at one time or another, or another has done so for them. For the most part, they sit in a safe deposit box until cash is needed (or you remember that you have them). However, there may be a need to find out more about the bonds or liquidate them as part of estate planning, estate administration, or elder law, or just sound financial planning for yourself.

Savings bonds are investment in the US government. There are various types of bonds, that earn interest in different fashions, and have unique tax consequences. Luckily, there are some wonderful resources on the web to cut through all of this information.

The US Government provides a very informative website at that goes through the purchase and redemption of various government investments (T-Bills, T-Notes, T-Bonds, I Bonds, EE Bonds, HH Bonds) and explains the differences between the various investments.

There is a very useful toolbox a the website for determining the current and future value of your investment:

Have Your Treasury Securities Stopped Earning Interest?

Savings Bond Wizard

Savings Bond Calculator

Growth Calculator

Savings Planner

Tax Advantages Calculator

Another excellent site is This is a commercial site oriented to financial planning. It does have excellent step-by-step guides on bond redemption, including the practicalities of redemption and guidelines to the tax consequences.

Wednesday, August 24, 2005

Married and Don't have a Will? New Jersey has one for you

Category: Estate Planning, Probate and Estate Administration

Surprise! If you don't make your own Will, the State of New Jersey has one for you. While this might seem like a generous thing, the question is whether the will that New Jersey made for you matches what you would like done with your assets.

Survived by Spouse, not survived by parents or descendents: 100% to Spouse.

Survived by Spouse, and survived by descendents of both spouses (ie: no step-children: 100% to Spouse.

Survived by Spouse and a parent, but no descendents: the first 25% of the estate (no less than $50,000 and no more than $200,000) PLUS 50% of the balance of the estate to Spouse; the remaining balance of the estate to parents.

Survived by Spouse and a descendant who is not also a descendant of the Spouse (i.e.: a stepchild): the first 25% of the estate (no less than $50,000 and no more than $200,000) PLUS 75% of the balance of the estate to Spouse; the remaining balance of the estate to children.

Friday, August 12, 2005

Practical Thoughts for an Executor - an Outline of your Role

Category: Probate and Estate Administration

Estate administration is the process by which a deceased person's property, known as the 'estate,' is passed to his or her heirs and legatees (people named in the will). Estate administration encompasses all assets of the decedent - real estate, joint accounts, insurance, IRA', etc. - anything and everything a decedent had any interest in when they died. Probate is a subset of estate administration - dealing solely with those assets owned in a persons sole name, with no beneficiary designation at the time of his or her death. The are known as "probate assets". Probate assets are controlled by the will, and the procedure of probate is governed by the Surrogate court. The entire process is a lengthly one, taking a year, or in many cases, several years.

The emotional trauma brought on by the death of a close family member often is accompanied by bewilderment about the financial and legal steps the survivors must take. The spouse who passed away may have handled all of the couple's finances. Or perhaps a child must begin taking care of probating an estate about which he or she knows little. And this task may come on top of commitments to family and work that can't be set aside. Finally, the estate itself may be in disarray or scattered among many accounts.

Below is a general outline of the steps the surviving family members should take. These responsibilities ultimately fall on whoever was appointed executor (or personal representative if there was no will). Note that matters can be much more complicated in the absence of a will, because it may not be clear who has the responsibility of carrying out these steps.

First, secure the tangible property. This means anything you can touch, such as silverware, dishes, furniture, or artwork. You will need to determine accurate values of each piece of property, which may require appraisals, and then distribute the property as the deceased directed. If property is passed around to family members before you have the opportunity to take an inventory, this will become a difficult, if not impossible, task.

Second, take your time. You do not need to take any other steps immediately. While bills do need to be paid, they can wait a month or two without adverse repercussions. It's more important that you and your family have time to grieve. Financial matters can wait.

When you're ready, you should meet with an attorney experienced in estate planning and estate administration to review the steps necessary to administer the deceased's estate. An attorney will review and organize as much information as possible about the decedent's finances, taxes and debts and use that to identify the executors responsibilities, any areas of potential liability, and map out a plan of action.

The exact rules of estate administration differ from case to case, but the following order generally applies:

1. Filing the will and petition at the surrogate court in order to be appointed executor or personal representative. In the absence of a will, heirs must petition the court to be appointed "administrator" of the estate. An adminstrator will likely be required to post a bond.

2. Marshaling, or collecting, the assets. This means that you have to find out everything the deceased owned - not always an easy task. Many times we recommend that you consolidate all the estate funds to the extent possible, to make the situation more manageable. Bills and bequests should be paid from a single checking account, either one you establish or one set up by your attorney, so that you can keep track of all expenditures.

3. Paying bills and taxes. If an estate tax return is needed it must be filed within 9 months of the date of death. If a New Jersey inheritance tax return is needed, it must be filed within 8 months of death. If you miss these deadlines, severe penalties and interest may apply. If you do not have all the information available in time, you can file for an extension and pay your best estimate of the tax due.

4. Filing tax returns. You must also file a final income tax return for the decedent and, if the estate holds any assets and earns interest or dividends, an income tax return for the estate.

5. Distributing property to the heirs and legatees. Generally, executors do not pay out all of the estate assets until all liabilities are known, including a final approval of any tax returns.

6. Filing a final accounting. The executor may file an informal account with the beneficiaries, or a formal account with the surrogate court (depending on the circumstances. This accounting will list any income to the estate since the date of death and all expenses and estate distributions. Once the court approves this final account, the executor can distribute whatever is left in the closing reserve, and finish his or her work.

Monday, August 08, 2005

Checklist for Surviving Spouses -

Category: Probate and Estate Administration

Checklist for Surviving Spouses -