The loss of a loved one is a traumatic event and it can be among the most challenging of times to make important financial decisions. Proactive planning with a team of advisers — including an estate planning attorney, CPA, financial planner and insurance professional — can significantly reduce this burden. Here are a few things to consider:
Be prepared for the immediate. Even if you have prepared, following a death there are several steps that generally require immediate attention. These include (1) funeral arrangements, (2) guardianship of minors, (3) liquidity needs for the surviving spouse or other family members, (4) ensuring that cash and tangible personal property like jewelry and valuables are safe and secure, (5) addressing the needs of an operating business, (6) locating and filing the original will, and (7) obtaining death certificates.
Estate administration is a process. The estate administration process generally takes one to three years to complete and is supervised by attorneys. There are numerous steps in the estate administration process, including the following: (1) get the executor appointed by the Surrogate's Court, (2) open an estate checking account, (3) gather assets, consolidate and retitle them in the name of the estate, (4) address claims and expenses, (5) obtain date of death values for all assets, including appraisals for hard to value assets, (6) prepare estate tax returns (federal and state), (7) prepare income tax returns (including decedent's final life income tax return and the estate's income tax return, (8) obtain a closing letter and appropriate tax waivers from the IRS and state tax authorities, (9) distribute the estate and fund any trusts, which involves carefully allocating the specific assets among various beneficiaries, and (10) prepare an accounting (formal or informal) and obtain receipt and releases from the estate beneficiaries.
Your financial planner plays an important role in many of these steps, such as providing account statements, retitling accounts, updating basis information, communicating with the entire team of advisers and providing investment advice for the estate assets.
Tax planning. There are various tax issues to consider during the estate administration process, including: (1) selecting a taxable year for the estate, (2) considering alternate valuation date for asset values, (3) making a Qualified Terminable Interest Property election for a surviving spouse's trust or a Qualified Domestic Trust election for a non-citizen surviving spouse, (4) making an election to treat a revocable trust as part of the estate, (5) making a portability election for the decedent's unused federal estate tax exemption, (6) making generation-skipping tax allocations on the federal estate tax return, (7) determining which deductions to take on the estate tax return or on the estate's income tax return, and (8) deciding whether to make annual distributions from the estate or related trusts for income tax planning purposes (as the trust's income tax rates are often higher than the income tax rates of the trust beneficiaries).
When conflict arises. If there are conflicts in an estate, or any aspect of the estate will be contested, the client and team of advisers can consult with the attorney to objectively evaluate and resolve the issues.
It is important to recognize the warning signs of contested estates. These include (1) a beneficiary with diminished capacity, which can easily lead to power of attorney abuse, (2) second marriages (even the best cases raise difficult issues), (3) unequal treatment or disinheritance of children, (4) past intra-family litigations, (5) souring family relationships, (6) lurking personal property fights (parties often fight over property with sentimental value more than monetary value), or (6) parties wearing many hats, such as one child who is the trustee for the parents, the manager of family business, and the primary contact on everything to the exclusion of siblings. In these types of cases, it is usually best to consult with professionals and proceed carefully.
Grieving after the death of a loved one is a difficult time. It is prudent to have a team of advisers in place in advance of such events, so they can help address the myriad financial issues that arise.
Steven Saraisky is an attorney at Cole Schotz.