What Paperwork Is Needed after Someone Dies?

Tax return issues, family matters, business associates, partners, trustees, bankers, investment advisors and tax collectors from the IRS to state and local taxing authorities all require attention after someone has died. There is a lot of work, and often a grieving family member finds it helpful to enlist the aid of a professional to lighten the load. A recent article, “Checklist for Working With a Decedent’s Estate” from Accounting Web, contains a list of the tasks to be completed.

General administration and legal tasks. At the very earliest, the executor should create a timetable with the known tasks. If you’ve never done this before, there’s no shame in enlisting help from a qualified professional. Be realistic about your familiarity with tax and legal issues and your organizational skills.

Determine with your estate planning attorney whether probate is necessary. Is the estate small enough for your state’s laws to allow you to expedite the process? Some jurisdictions can do this, others do not.

If an estate plan was created and executed properly, many assets may not need to go through probate. Assets like IRAs, joint tenancies, accounts that are POD, or Payable on Death and any assets with named beneficiaries do not require probate.

Gather information about family owners or others who may have a claim to the estate and who may have useful information about the assets. You’ll need to locate and notify heirs of the decedent’s passing.

Others who need to be notified, include charities named in the will. You’ll need to identify prior transfers to charities that were partial transfers, such as Charitable Remainder Trusts. If there is a charitable remainder trust with a retained lifetime income interest, it will need to be in the estate tax return, albeit with an offsetting estate tax charitable deduction.

Locate the important documents, including the will, any correspondence relating to the will, any letters explaining the decedent’s wishes, deeds, trusts, bank and brokerage statements, partnership agreements, prior tax returns, federal and state tax forms and any gift tax returns.

An estate planning attorney will be able to help determine ownership issues, including identifying assets and liabilities. This includes deeds, vehicle titles, club memberships, personal possessions and business assets, including copyrights and patents.

Social Security will need to be notified, as will Medicare, pension administrators, Department of Veteran Affairs, the post office, trustees, and any service providers.

Filing taxes for the last year of the person’s life and their estate tax filing needs to happen on a timely basis. Even if an estate tax return may not be required, it is useful to file to establish date of death values for assets. It is important to resolve income tax statute of limitation issues and any IRS or state examination issues.

Estate administration is a big job, especially if you’ve never done it before. Having the help of an experienced estate lawyer can alleviate much of the worry that comes with settling an estate.

Reference: Accounting Web (March 19, 2021) “Checklist for Working With a Decedent’s Estate”

Should Inherited Money Be Equally Split Between Family Members

Leaving an equal amount to adult children works for many families, but equal is not always equitable. In those cases, leaving different amounts to heirs can lead to irreparable breaks within the family. A recent article titled “The Unequal Inheritance: It Can Work, or It Can ‘Destroy Relationships’” from The New York Times examines the problem and some of the solutions. There are times, however, when even the fairest of decisions doesn’t heal the “Mom always liked you best” hurt, imagined or otherwise.

Unequal inheritances can trigger sibling fighting after a parent dies, some of which end up in court, especially if one child thinks that a parent was being overly influenced by the sibling who ended up with the bigger inheritance.

Parents need to explain their decision to each child, individually and as a group, or even seek mediation. Many estate planning attorneys encourage a family meeting, where everyone is in a neutral location, to discuss the parent’s wishes and estate plan. In some cases, the children understand when one of the siblings is disabled or has a lower earning potential.

Another reason for unequal inheritances is to balance things out when one child received significant support that others did not need. Equalization of gifts can be documented in an estate plan, as heirs may need to be reminded of the parent’s generosity at an earlier date. If this isn’t addressed, the siblings who received less help during the parent’s lifetime may resent their decision to give equally.

What about the caregiving child? Some parents decide to give extra to the adult child who became their primary caregiver. That usually takes the shape of the family home, a larger cash distribution or life insurance proceeds. However, siblings don’t always agree on how this is handled. Some will see the child’s decision to care for their parents as manipulative.

Blended families with stepchildren run into complications often. The growth in stepfamilies is a big part of why Americans 50 and older left their children unequal bequests, which more than doubled from 16 percent in 1995 to 35 percent in 2010, as reported in a study from the National Bureau of Economic Research.

At the same time, the study also found that the longer the relationship, the more likely the parent would leave stepchildren inheritances equal to that of a biological or adopted child.

Even when parents intend to split the estate equally, failing to plan for taxes can leave children with different inheritances. This happens when parents leave different types of assets to different heirs.

If a parent left a $500,000 IRA to one child and a $500,000 taxable brokerage account to another, the child who received the IRA will pay federal income taxes up to 37 percent on every withdrawal, which now must be done within ten years of the death of the parent. The child with the brokerage account would have to pay a long-term capital gains tax of up to 20 percent, when an appreciated asset was sold.

Generally speaking, IRA and other tax deferred accounts should have all children as equal beneficiaries. These accounts are usually outside of the probate estate. A house may be left in a trust or the will, with directions for the house to be sold and all assets divided equally.

There is no way around it—inheritances are seen as a proxy for love, and any unequal distribution will be felt as such, even by the most rational of people. Speak with your estate planning attorney to learn how to avoid these scenarios and consider holding a family meeting to make sure your intentions and the reasons behind your intentions are made clear to all concerned.

Reference: The New York Times (Feb. 19, 2021) “The Unequal Inheritance: It Can Work, or It Can ‘Destroy Relationships’”

What States Make You Pay an Inheritance Tax?

Let’s start with defining “inheritance tax.” The answer depends on the laws of each state, so you’ll need to speak with an estate planning attorney to learn exactly how your inheritance will be taxed, says the article “States with Inheritance Tax” from yahoo! finance. There are six states that still have inheritance taxes: Iowa, Kentucky, Nebraska, New Jersey, Maryland and Pennsylvania.

In Iowa, you’ll need to pay an inheritance tax within nine months after the person dies, and the amount will depend upon how you are related to the decedent.

In Kentucky, spouse, parents, children, siblings and half-siblings do not have to pay inheritance taxes. Others need to act within 18 months after death but may be eligible for a 5% discount, if they make the payment within 9 months.

Timeframes are different county-by-county in Maryland, and the Registrar of Wills of the county where the decedent lived, or owned property determines when the taxes are due.

Only a spouse is exempt from inheritance taxes in Nebraska, and it has to be paid with a year of the decedent’s passing.

New Jersey gets very complicated, with a large number of people being exempted, as well as qualified religious institutions and charitable organizations.

In Pennsylvania, rates range from 4.5% to 15%, depending upon the relationship to the decedent. There’s a 5% discount if the tax is paid within three months of the death, otherwise the tax must be paid within nine months of the death.

As you can tell, there are many variations, from who is exempt to how much is paid. Pennsylvania exempts transfers to spouses and charities, but also to children under 21 years old. If one sibling is 20 and the other is 22, the older sibling would have to pay inheritance tax, but the younger sibling does not.

There’s also a difference as to which property is subject to inheritance taxes. In Nebraska, the first $40,000 inherited is exempt. Pennsylvania exempts certain transfers of farmland and agricultural property. All six exempt life insurance proceeds when they are paid to a named beneficiary, but if the policies are paid to the estate in Iowa, the proceeds are subject to inheritance tax.

Note that an inheritance tax is different than an estate tax. Both taxes are paid upon death, but the difference is in who pays the tax. For an inheritance tax, the tax is paid by heirs and the tax rate is determined by the beneficiary’s relationship to the deceased.

Estate tax is paid by the estate itself before any assets are distributed to beneficiaries. Estate taxes are the same, regardless of who the heirs are.

There are twelve states and the District of Columbia (Washington D.C.) that have their own estate taxes (in addition to the federal estate tax). Note that Maryland has an inheritance, state and federal estate taxes. The rest of the states with an estate tax are Connecticut, Hawaii, Illinois, Maine, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Washington and Vermont.

The large variations on estate and inheritance taxes are another reason why it is so important to work with an experienced estate planning lawyer who knows the estate laws in your state.

Reference: yahoo! finance (Jan. 6, 2021) “States with Inheritance Tax”

What Happens to Credit Card Debt when Someone Dies?

Credit card debt worries create sleepless nights for many. Will a surviving spouse or family members be burdened with the debt? A recent article titled “Here’s what happens to your credit card debt when you die” from CNBC explains how post-mortem credit card debt works.

Probate occurs after a person dies and their assets, aka their estate, is frozen by the court, until their will is validated, assuming there is a will. The debts are then settled and the beneficiaries are identified.

Credit card debt is “unsecured” debt, meaning it isn’t linked to any kind of collateral, like a car or a house. The state will usually mandate the person’s remaining assets to be used to pay off credit card debt.

Assets used to pay off the debt could include cash, or property with cash value. Certain types of accounts, including retirement or tax-deferred accounts, brokerage accounts and life insurance payouts, might be shielded from this process. Laws vary by state, so an estate planning attorney who practices in the state where the decedent lived will be the best source to address this issue.

Is the surviving spouse responsible for credit card debt?

If the person has no assets, then loved ones won’t be responsible for the debt. However, if someone is a joint account owner on the credit card, then in certain states, the surviving owner may be responsible. Authorized users are generally not held responsible for the deceased’s unpaid balances.

Heirs may not be legally responsible for paying the credit card debt, but all debt must be settled before loved ones can receive their inheritance. Workarounds, if possible, need to be done in advance of the person’s death, like creating a trust fund.

Probate laws differ by state, but any joint account holders on credit cards need to be aware of the debt and have a plan for when one of the owners dies. If paying off the debt is not possible, perhaps one of the joint owners may seek to remove themselves from the credit card, if the other person was responsible for creating the debt.

A frank discussion about the debt and how to manage it is definitely in order. One solution may be to purchase a life insurance policy and have the proceeds go to the person who may be responsible for the debt. A term policy might be a manageable way to do this, especially if both people depend on two incomes to manage their bills.

This won’t be the most pleasant discussion with a financial partner, but is necessary, along with planning for incapacity. Perhaps the best thing that can come out of the credit card problem, is a decision to have an estate plan created that includes addressing the debt and preparing for the future.

Reference: CNBC (Nov. 21, 2020) “Here’s what happens to your credit card debt when you die”

How Do You Stop Family Fights Over an Inheritance?

More than two-thirds of all advisors surveyed by Key Private Bank said the hardest part of estate planning is navigating family dynamics, according to a 2019 survey. The sensitivities of simply talking about estate planning often present emotional challenges to putting a plan in place, especially when the family includes multiple marriages and blended families.

Advice is offered in a recent news article from CNBC, “Executor of a Family Estate? Here’s How to Avoid Infighting Over Inherited Wealth.”

Much of the problem, experts say, stems from poor communication. A dialogue needs to be open between generations that is a two-way conversation. In most instances, the older generation needs to invite the younger generation to get the ball rolling.

A lack of clarity and transparency can lead to problems. One example is a father leaving the family farm to his children, with a plan that also included money to help run the farm and legal documents to help the transition go smoothly. However, the children didn’t want the farm. They wanted to sell. Disagreements broke out between siblings, and the family was bogged down in a big fight.

Clearly Dad needed to talk with the children, while his estate plan was being created. The children needed to be upfront and honest about their plans for the future, and the issue could have been solved before the father’s death. The lesson: talk about your wishes and your children’s wishes while you are living.

After someone dies, they may leave behind an entire estate, with a lifetime of personal items that they want to gift to family members. However, if these items are not listed in the will, the heirs have to decide amongst themselves who gets what. This is asking for trouble, whether the items have sentimental or financial value. In fact, sentimental items often generate the most controversy.

When conflicts arise, the presence of a third party who doesn’t have emotional attachments and is not embroiled in the family dynamics can be helpful.

If the issue is not addressed before death, there are a few ways to move forward. An estate planning attorney who has seen many families go through this process can offer suggestions while the will is being prepared. There are facilitators or mediators who can help, if things get really rocky.

Heirs may wish to create a list of items that they would like to be reviewed by the executor. This option works best, if the executor is not a sibling, otherwise charges of favoritism and “Mom always liked you best” can spiral into family spats.

Some families group items into buckets of equal value, others set up a lottery to determine who picks first, second, etc., and some families literally roll the dice to make decisions.

Reference: CNBC (Nov. 12, 2020) “Executor of a Family Estate? Here’s How to Avoid Infighting Over Inherited Wealth”

What Happens When a Will Is Challenged?

What happens when estate planning doesn’t go according to plan? A last will and testament is a legally binding contract that determines who will get a person’s assets. However, according to the article “Can you prevent someone from challenging your will?” in the Augusta Free Press, it is possible for someone to bring a legal challenge.

Most will contests are centered around five key reasons:

The deceased had a more recent will.
The will was not signed voluntarily.
The deceased was incapacitated, when she signed the will.
The will was not signed in front of the right number of witnesses.
The will was signed under some kind of duress or mental impairment.

What is the best way to lessen the chances of someone challenging your will? Take certain steps when the will is created, including:

Be sure your will is created by an estate planning attorney. Just writing your wishes on a piece of paper and signing and dating the paper is not the way to go. Certain qualifications must be met, which they vary by state. In some states, one witness is enough for a will to be properly executed. In others, there must be two and they can’t be beneficiaries.

The will must state the names of the intended beneficiaries. If you want someone specific to be excluded, you’ll have to state their name and that you want them to be excluded. A will should also name a guardian, if your children are minors. It should also contain the name of an alternate executor, in case the primary executor predeceases you or cannot serve.

What about video wills? First, make a proper paper will. If you feel the need to be creative, make a video. In many states, a video will is not considered to be valid. A video can also become confusing, especially if what you say in the paper will is not exactly the same as what’s in the video. Discrepancies can lead to will contests.

Don’t count on those free templates. Downloading a form from a website seems like a simple solution, but some of the templates online are not up to date. They also might not reflect the laws in your state. If you own property, or your estate is complex, a downloaded form could create confusion and lead to family battles.

Tell your executor where your will is kept. If no one can find your will, people you may have wanted to exclude from your estate will have a better chance of succeeding in a will challenge. You should also tell your executor about any trusts, insurance policies and any assets that are not listed in the will.

Don’t expect that everything will go as you planned. Prepare for things to go sideways, to protect your loved ones. It is costly, time-consuming and stressful to bring an estate challenge, but the same is true on the receiving end. If you want your beneficiaries to receive the assets you intend for them, a good estate planning attorney is the right way to go.

Reference: Augusta Free Press (July 12, 2020) “Can you prevent someone from challenging your will?”

Can I Disinherit Anyone I Want?

If there’s someone you believe is more deserving or needs more of your help, that may mean someone else in your life may receive little or nothing from you when you die. However, be careful—disinheriting an heir is not as simple as leaving them out of your will, explains the article “How to Disinherit an Heir” from smart asset.

Disinheriting an heir means you’ve prevented them from receiving a portion of your estate, when you die. A local estate planning lawyer will know what your state requires, and every state’s laws are different.

One way is by leaving the person out completely. However, this could also leave your will up for interpretation, as there may be questions raised about your intent. A challenge could be raised that you didn’t mean to leave them out—and that could create stress, expenses and family fights.

You may also disinherit a person, by stating in your will that you do not wish to leave anything to this specific person. You might even provide information about why you are doing this, so your intent is clear. There could still be challenges, even with your providing reasons for cutting the person out of your will.

Disinheriting someone can be a tricky thing to do. It requires professional help. Working with an experienced estate planning attorney who has experience in will contests, may be your best choice for an estate planning attorney.

There are instances where relatives known and unknown to you are entitled to make a claim on your estate. An experienced estate planning attorney may suggest a search for relatives to ensure that no surprises come out of the woodwork, after your passing.

There are some relatives who cannot be disinherited, even in a legally binding last will and testament. In many states, you may not disinherit your spouse or children. Most states protect spouses from being disinherited, and in some states, children are legally entitled to a certain amount of your property. However, in most states, you may disinherit parents, if they outlive you.

There are many reasons you may want to disinherit someone. You may have been estranged from a child or a cousin for many years, or you may believe they have enough financial resources and want someone else to receive an inheritance from you.

Many high-profile individuals have declared that their children will not receive an inheritance, preferring to give their assets to charitable foundations or organizations working for causes they support.

Whatever your reasons for disinheriting someone, make sure you go about it with professional help to ensure that your wishes are followed after you die.

Reference: smart asset (June 1, 2020) “How to Disinherit an Heir”

Picasso’s Sole Heir Continues to Sell Artwork

The great artist was also known for the many women he was involved with, but he only married two of them, says a recent article that asks “Who are Picasso’s heirs? Auction at Sotheby’s reignites dispute,” appearing in The Wealth Advisor. Officially, there is only one legitimate heir to Picasso’s vast estate, but that wasn’t settled until after his death.

Picasso’s first child was Paulo, born to Olga Khokhlova, a famous Russian dancer. They wed in 1918, during World War I. Paulo would have been an heir, but he died in 1975. Picasso fathered other children outside of wedlock, including Paloma in 1940, Claude in 1947, and Maya in 1935. Only after their father’s death and legal battles, were Picasso’s grandchildren recognized as rightful heirs to part of his inheritance.

Long-standing disputes between Picasso’s second wife, Jaqueline Roque, and the children from his previous lovers went from slow simmer to boil after his death in 1973. Picasso had married Roque in 1961, after Khokhlova had died. He was 80 and had never divided his estate or did any estate planning. He left an enormous empire—villas, artwork and other possessions—with no plan and no will.

After his death, a famous Parisian auctioneer was commissioned to log all of his artwork, creating a list for the French government. The task took from 1974 to 1981.

The entire estate was estimated to be worth 3.75 billion francs, including $1.3 million in gold, $45 million in cash and a personal art collection valued at 1.4 billion francs. The collection included many pieces created by friends like Matisse, Miro and Cezanne.

One of the many problems he left for his heirs: an inheritance tax of several million francs on his property. To pay his taxes, 3,800 artworks became state property and instead of belonging to his heirs, they are now in the Picasso Museum in Paris. The museum has the largest collection of Picasso’s work. However, that might not have been his or his heirs’ intention.

Picasso’s granddaughter, the daughter of his eldest son Paolo and the only surviving relative by marriage, Marina Ruiz-Picasso, said that the state took a large selection of artwork, and the rest was raffled off to the individual heirs like a lottery.

She wrote a book about being his granddaughter, and it was not flattering. She said that his father’s work “demanded human sacrifices.” Needless to say, she had a difficult relationship with her famous grandfather. For many years, she left his artwork untouched in storage. However, in recent years, she has auctioned off many paintings and drawings, earning millions from the sales.

An online auction of more than 200 pieces, including drawings, paintings and gold medallions, took place in mid-June at Sotheby’s. Marina Ruiz-Picasso is one of the wealthiest women in Switzerland and lives in a villa on Lake Geneva.

Reference: The Wealth Advisor (June 16, 2020) “Who are Picasso’s heirs? Auction at Sotheby’s reignites dispute”

Estate Planning Blog Articles

Estate & Business Planning Law Firm Serving the Providence & Cranston, RI Areas

What Paperwork Is Needed after Someone Dies?

Should Inherited Money Be Equally Split Between Family Members

What States Make You Pay an Inheritance Tax?

What Happens to Credit Card Debt when Someone Dies?

How Do You Stop Family Fights Over an Inheritance?

What Happens When a Will Is Challenged?

Can I Disinherit Anyone I Want?

Picasso’s Sole Heir Continues to Sell Artwork

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What Paperwork Is Needed after Someone Dies?

Should Inherited Money Be Equally Split Between Family Members

What States Make You Pay an Inheritance Tax?

What Happens to Credit Card Debt when Someone Dies?

How Do You Stop Family Fights Over an Inheritance?

What Happens When a Will Is Challenged?

Can I Disinherit Anyone I Want?

Picasso’s Sole Heir Continues to Sell Artwork

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