Riddle & Akiens, LLP

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1 Riddle & Akiens, LLP Planning for Generations SM Handbook for Fiduciaries What to do When a Loved One Dies What do I do after the death of a loved one? How do I prepare for the meeting with the attorney? What should I expect to know after the first meeting with the attorney? What type of administration will be appropriate? What should I expect my attorney to do? What are my responsibilities?

2 Getting Started What do I do after the death of a loved one? Below is a briefing of some information that you might find helpful in managing the estate of a loved one. If you have been appointed as executor or trustee or if you find the need to administer a Decedent s estate who died without leaving a Will, be prepared as you are about to embark on a journey. To make your journey shorter and less stressful, you will need a knowledgeable and experienced guide. Make arrangements for the funeral and burial. When your family member dies, arrangements for the funeral and burial should be made. Sometimes, the deceased family member has life insurance which names a funeral home as a beneficiary. These burial policies are common and help pay for the funeral costs. Alternatively, the family member might have arranged for a prepaid funeral with a funeral home. If no life insurance policy exists, or if there is no prepaid funeral contract, then the terms of the funeral and burial will have to be negotiated with a funeral home. Some funeral homes will require you to sign a contract personally guaranteeing the payment of the funeral and burial. If there are insufficient funds in the family member s estate to pay this bill, then the person signing the contract with the funeral home will be personally responsible for payments under the contract. Also, the funeral home will ask you how many death certificates you would like, be sure to order at least twenty. Find an attorney to review the original Will for analysis and probate. Finding an attorney can be difficult. When you are looking for an attorney, it is best to rely on referrals from family, friends, coworkers, and business associates who have personally dealt with the referred attorney. The best referral source for an attorney is a satisfied client. If you look for an attorney using the yellow pages or internet, to increase the likelihood that you will find an attorney knowledgeable in the area of estate administration. You should find an attorney who is Board Certified in Estate Planning and Probate by the Texas Board of Legal Specialization. Attorneys who are Board Certified practice primarily in the areas of specialization. Gather Information About the Estate. It is often difficult to know what a loved one owned unless the person was a spouse. While you do not need a comprehensive and detailed list of assets for your initial meeting with your attorney, it will be important for the attorney to know the value and nature of the assets in the estate. You may find important clues regarding the assets of an estate by reviewing the Decedent s mail, bank statements, and income tax returns. Get Familiar with Probate Terminology. Below is a list of words that your attorney might believe you are familiar with: Executor person or institution appointed in decedent s Will to carry out the terms of the Will and to administer the estate of the decedent. Trustee person or institution appointed by the person creating the trust to collect and manage trust assets and make distributions to the beneficiaries in accordance with the terms of the trust. Probate the process through which title to assets is transferred from the decedent to a beneficiary when the transfer is governed by a Will or intestacy statutes. Letters Testamentary document issued by the court giving the executor or administrator authority to act on behalf of the estate. Intestate decedent who died without a Will. Testate decedent who died with a Will. Codicil an amendment to a Will.

3 Putting Your Ducks in a Row How do I prepare fore the initial meeting with my attorney? When you meet with your attorney, plan to stay about two hours. Be aware that your meeting with the attorney is confidential; but if you bring a person with you to the meeting, such person is not bound by the same confidentiality rules and fiduciary duties as the attorney. Before your meeting, you may want to do the following: Make a list of assets in the estate. After the funeral and burial have been arranged, consider making a list of the assets of the deceased family member prior to meeting with the attorney. When making this list of assets in the estate, be sure to indicate: 1) how each asset is titled; 2) who is named beneficiary (if the asset is life insurance, a retirement plan, an annuity, or a bank account listing a pay on death beneficiary); and 3) the value of the asset. Knowing this information will help you and the attorney determine whether the Will requires probate, as probate may be avoided if assets pass directly to beneficiaries or if the assets are owned by a trust. In addition, the attorney will be able to more accurately estimate the cost of administration. Finally, the attorney will be able to determine if the estate should file a federal estate tax return. Bring a Copy of the Death Certificate. While the attorney may begin the probate process without a copy of the decedent s death certificate, the death certificate will provide the attorney with valuable information. What if the Decedent Failed to Leave a Will? Frequently, a Decedent fails to leave a Will, especially if the Decedent was young or the death was sudden. When a person dies without a Will, they die intestate. If this happens, your attorney will need to know the answers to the following questions about the deceased family member: Was the Decedent married? If yes, to whom? Was the Decedent ever divorced? If yes, from whom, when, and where? What are the names, birth dates, and addresses of the Decedent s children, if any? Are all of the Decedent s children also the children of the Decedent s spouse? Also, if the Decedent failed to leave a Will, the attorney will need the names and contact information of two witnesses. The witnesses will need to testify that they knew the Decedent and was well acquainted with the family history of the Decedent. The witnesses you choose will have to either appear in court if they are able or answer written questions prepared by the attorney. The witnesses may be related to the Decedent but they may not be entitled to any part of the Decedent s estate. Find and Review the Last Will and Testament. Before you meet with the attorney, find and review the deceased family member s Last Will and Testament. Determine from reading the Will who the named executor is and make sure that the executor is present at the meeting with the attorney, as the attorney will be representing the executor, not the beneficiaries. Also, if the decedent left more that one Will or left a codicil, the attorney will need those documents as well. The attorney will need to file the original Will and codicil(s) with the court; so it is helpful to bring the original documents. If the original Will cannot be located, bring a copy of the Will to the meeting.

4 What to Accomplish in Your First Meeting What should you know after your first meeting with your attorney? After the first meeting with your attorney, you should know the answers to the following questions: What type of administration will be necessary? Approximately when will the court hearing be? Who is required to be at the court hearing? Approximately how long will the administration process last? Is the estate a taxable estate? What information do I need to gather to help the attorney to complete the administration? What tax returns am I required to file? What are my duties to the beneficiaries? Approximately how much is the attorney going to charge for the administration of the estate? What other professional will need to get involved to complete the administration process? What types of administrations are there? The type of administration affects the cost, duration, and ease of administration. The administration of an estate is necessary even when the probate of an estate is unnecessary. The administration of an estate involves the following steps: Independent Administration. The most common form of administration is an independent administration. An independent administration may be had in the following circumstances: 1. Decedent provided for independent administration in his/her Will; 2. All distributees under the Will agree to have independent administration even if not provided for under the Will; or 3. All heirs of the decedent who died intestate agree to nominate an independent administration. In an independent administration, an executor is allowed to administer the decedent s estate without court supervision. All an executor is required to do with the court is file an application to probate, have a hearing in front of the judge, receive letters testamentary, file a notice to creditors, file a 128A Affidavit, and file an inventory or affidavit within ninety days of being appointed by the court as independent executor. The executor does not need to ask the court for permission to sell or distribute any assets. However, if a sale or distribution does not take place correctly, then the executor can be personally liable for the loss to the beneficiaries. Determine and pay debts and expenses of the decedent/estate File final income tax returns File estate tax return, if necessary File gift tax returns, if necessary Collect all assets of estate Prepare inventory of estate assets Prepare accounting of estate Create and fund testamentary trusts or distribute assets to beneficiaries Have guardian of children appointed, if necessary Obtain receipts and releases from beneficiaries

5 Types of Administrations Below is a time line for a simple, uncontested, nontaxable probate. The time line illustrates a best case scenario. Delays may result if the decedent died intestate, the beneficiaries are not supportive of the administration, witnesses are needed to prove up a Will (in the case of a Will that is not self proved), the estate is taxable, or the probate is contested. Day 1: Meet with attorney to deliver Will, discuss fees, review duties of client, and clarify scope of attorney s employment. Day 7: Attorney sends client a fee agreement itemizing actions necessary for the completion of administration. Day 7: Attorney files with the local county or probate court an Application to Probate Will and for Issuance of Letters Testamentary along with the Last Will and Testament of the Decedent. Day 21: Attorney accompanies client to hearing on the Application to Probate Will and for Issuance of Letters Testamentary. Attorney prepares all paperwork for hearing. Attorney asks client to sign Form SS-4 Application for Employer Identification Number for the estate, if necessary. Day 28: Attorney sends client a letter enclosing Letters Testamentary and Employer Identification Number for the estate, enabling the client to open a bank account and begin collecting assets. Attorney assists client in filing claims to obtain life insurance proceeds, if necessary. Day 51: Attorney must have published and filed Notice to Creditors within thirty days of the hearing date. Additionally, if the estate has unsecured creditors, the client may wish to send the creditors a Permissive Notice to Creditors. Day 111: Attorney must have filed with the court a 128A Affidavit along with an Inventory, Appraisement, and List of Claims (Inventory) or and affidavit regarding inventory within ninety days of the hearing date. The Affidavit and Inventory are prepared by the attorney with the assistance of the client. Dependent Administration. In a dependent administration, the executor must do all of the tasks required of an independent executor. In addition, in a dependent administration, the executor or administrator is closely supervised by the court in regards to the sale or distribution of property. The executor or administrator is also required to complete and file with the court detailed accounting records on every transaction. In a dependent administration, the executor must petition the court for permission to do almost everything. The executor cannot pay any debts in the estate, nor can the executor sell or distribute any assets without first obtaining permission from the court to take the requested action. The court then enters an order authorizing the action. A dependent administration means more attorney fees, increased expenses in filing fees and bond premiums, and a more lengthy process in completing the estate. Dependent administrations take longer and cost much more than an independent administration. Dependent administration is appropriate for insolvent estates and estates in which the beneficiaries are litigious. Most dependent administrations result when a person dies without a Will, there is no executor named in the Will, or there are minor beneficiaries of an estate. Muniment of Title. A muniment of title is a simple form of probate. It is often used when the only asset requiring probate is real property. It is unavailable if the estate contains cash or securities, and the banking institutions require letters testamentary to transfer title to such assets. Letters testamentary can only be issued in independent or dependent administrations. Muniments of title are commonly used when a Will is being probated after four years have expired since the decedent s death. Heirship. When a person dies intestate, it is often necessary to seek a judgment declaring heirship. If the estate requires administration, the heirship may be accompanied by either an independent or dependent administration. The court appoints an attorney to investigate the family history of the decedent. The judgment declaring heirship sets out the heirs and their interest in the estate.

6 What is the Role of My Attorney? What should my attorney do? In addition to probating the Will when necessary, the attorney coordinates the administration of the estate or trust by providing the following services: Assist in determining the value of assets. Sometimes, assets in an estate or trust should be evaluated by an appraiser and the attorney will make recommendations and work with the appraiser; Assist the client with determining the liabilities of the estate and advise regarding the priority of payment of the liabilities; Assist in the transfer of title to beneficiaries or the setting up and funding of trusts in accordance with the terms of the governing document or law; Prepare and file a 706 Estate Tax Return for the estate, if appropriate, and coordinate the deductions on 706 and income tax returns with client s CPA; and The attorney should alleviate some of the burdens associated with the loss of a loved one by providing timely service, accurate advice, and helpful information. The attorney is your fiduciary. The attorney you hire has a fiduciary duty of loyalty, care, and confidentiality to you as the executor of an estate or trustee of a trust. The attorney does not represent the estate, trust, or the beneficiaries, rather the attorney represents you. In administering an estate or Trust, the focus of the attorney is to protect the client. The attorney will only advise you to do what is right and defensible. While the attorney may communicate with the beneficiaries, the attorney s focus will remain on the client. The attorney will also communicate with the creditors of the estate. The Role of the attorney s support staff. The attorney s support staff is there to help you. The role of the staff is to answer non-legal questions, assist you in gathering information, and inform you of dates and deadlines. In addition, the staff may handle routine correspondence with the court. Conflicts of interest. Sometimes, albeit rarely, the attorney who drafted the decedent s Will may be unable to represent the executor of the decedent s Will or trustee of the decedent s trust. The most common situation in which an attorney is unable to represent an executor is when the Will that was prepared by the attorney is being contested. The attorney is unable to represent the executor because the attorney must serve as a witness. The second situation in which an attorney may be unable to represent a client is when the attorney or one of the attorney s existing clients has a conflict of interest with an executor or trustee. If a contest is filed or a conflict arises, the attorney has a duty to withdraw from the case. Attorney fees. Attorneys generally charge by the hour or offer a flat fee for their representation. At Riddle & Akiens, LLP, the initial consultation with the client is free of charge. The attorney explains the flat fee versus the hourly rate and it is ultimately up to the client to choose between a flat fee or hourly rate. The average estate administration costs between one to two percent of the value of the estate. Some may be lower and some higher. If the administration is contested, dependent, or involves a guardianship, the fees may be greater. The attorney will provide a fee agreement which explains his fees and outlines the scope of the engagement. This fee agreement will define your relationship with your attorney.

7 What is My Role as a Fiduciary? What is my role as a fiduciary? If you are serving as the executor of an estate or trustee of a trust you are acting as a fiduciary to the beneficiaries of the estate or trust. As a fiduciary, you must act in the best interest of the beneficiaries at all times and protect the interests of the beneficiaries in the assets of the estate or trust. Serving as an executor or trustee is a thankless job. You may feel like the only one rowing in a boat with the passengers adding weight, making your job more difficult, and demanding that you row faster. Executors and trustees have the following fiduciary duties to beneficiaries: Keep good records. As a fiduciary, you are accountable to others because you are taking care of property that belongs to another. If you are not the only beneficiary of the estate or trust, you will need to keep detailed information on every transaction. A convenient way to keep up with the fiduciary accounting is to use a spreadsheet program like Excel to record every payment, receipt, and beneficiary distribution. Also, you should make copies of all outgoing correspondence. Communicate with your attorney. Communication with your attorney will save you time, energy, and money. It is especially important to discuss the following issues with the attorney and complete the following tasks only under that attorney s supervision: Loyalty to the beneficiaries Refrain from self-dealing Faithful administration Provide full disclosure Preparing claim forms for life insurance proceeds Preparing claim forms for collection of retirement assets including 401(k) and IRA plans Entering into contracts on behalf of estate Selling assets of the estate Filing income and estate tax returns Paying debts of the estate Making distributions to beneficiaries. File income tax returns. As the executor of the estate or trustee of a trust, it is your duty to file income tax returns for the estate or trust. Be sure that your CPA is experienced in the area of fiduciary income tax returns. Also, remember that the beneficiaries cannot prepare and file their own income tax returns until they receive a K-1 from the estate or trust s income tax return. Consequently, it is very important to get an early start on the preparation of the fiduciary income tax returns. Finally, estate and trust income tax rates are compressed so the income tax rates for estates and trusts are usually higher than the individual income tax rates of the beneficiaries. To avoid the higher tax rates, the income of the estate or trust should be distributed to the beneficiaries before the expiration of 60 days after the end of the tax year. Communicate with beneficiaries. While you do not have a formal fiduciary duty to communicate with beneficiaries, it is often a good idea to let them know what is going on with the administration. Your duty of full disclosure requires that the beneficiaries receive copies of the following: 1) Will or trust; 2) income tax returns; 3) inventory of assets being administered; and 4) an accounting of estate assets and liabilities. Obtain receipt and releases from beneficiaries. When you make a final distribution to a beneficiary, it is critical that you receive a receipt and release from the beneficiary. To enable a beneficiary to properly execute a release, the beneficiary must have copies of all relevant documents related to the administration and should have a copy of an accounting of the administration. The attorney should prepare the receipt and release to ensure that the language protects you from any liability associated with the administration. If you are unable to obtain a release from the beneficiaries, a declaratory judgment releasing you of liability may be necessary.

8 Prepared by: Riddle & Akiens, LLP 4201 Cypress Creek Pkwy, Ste. 550 Houston, Texas (281) (281) Michael C. Riddle, JD Karen K. Akiens, JD, LL.M.(Tax), MBA Estate Planning & Probate Copyright by Riddle & Akiens, LLP All Rights Reserved