Introduction
This started out as a list of suggestions about making duties easier for your executor. It has developed into a discussion of things we consider in drafting wills and planning estates. We hope that it will be valuable to you in working with us to prepare your estate plan.
Choosing Your Executor
When your estate is administered, if you have left a will, you should have named an executor to manage your estate. In some states, such as Florida, the executor is referred to as "personal representative."
The first thing you can do to help your executor is to choose the right person to serve in that capacity. In many cases, much of the work can be delegated to another person, such as an attorney or accountant, but it is essential that your executor be able and willing to spend time attending to deadlines and dealing with detail.
Some deadlines are critical, such as filing the federal and Massachusetts estate tax returns (if the estate is subject to either or both taxes).
If you wish to designate an executor, talk with him or her and make sure that he or she would not regard the tax as overly burdensome.
You will wish to designate an alternate executor to serve if the named executor is unwilling or unable to serve.
When you consider the choice of executor, have in mind family relationships. If you wish to name one of your children, will the other children feel hurt if they are not chosen?
You can choose multiple executors ("co-executors"), if you wish. This can be cumbersome, but UPS and FedEx are very efficient at moving papers around the country and the job can get done. We suggest not naming more than two executors, because what may be cumbersome and can be too burdensome with more than two.
If you are planning that your estate will be administered when you are domiciled in Florida, consider the limitations under Florida law as to who may serve as executor.
Obviously, choose someone whom you trust. Sometimes people suggest that they wish to choose co-executors because they do not fully trust one or both. If you do not trust someone, do not choose them for this sensitive role.
Clients often name members of the firm of Haddleton & Associates as executor in their wills. We are able to provide experienced and impartial service in that capacity.
Where Are Your Beneficiaries?
Very often an executor is confronted with a will leaving gifts to many people, some of whom cannot readily be found. You should make a list of the people mentioned in your will, with their addresses, and keep the list up to date. If any of those people are related to you, you should indicate that in the list.
Don't Leave Your Executor Out on a Limb
Your executor will need to know who your nearest relatives are. Sometimes the will has no reference to any relatives, and there are no records of any relatives, and there appears to be nobody who knows who the relatives might be. In some cases it is necessary to hire a search firm to find missing relatives.
Prepare a "family tree" and leave it in a safe place.
Children of Beneficiaries
If a beneficiary dies before you do, should his or her interest fail, or would you wish it to go to his or her children?
Spouses of Beneficiaries
If a beneficiary dies before you do, would you want the share he or she would have received to go to the beneficiary's spouse?
Beneficiaries under a Disability
1. Minors
Is a designated beneficiary, or a contingent beneficiary (such as the child of someone who may be deceased) of full age? If the beneficiary is a minor, you will need to specify how the executor is to handle this. For example, the executor may be authorized to establish a custodial arrangement for the child's gift. If the gift to the child is large, you may wish to provide that the child's interest will be held in trust for him or her until the attainment of a specified age. If no plan is in place for the management of the funds of a minor, it may be necessary to establish a legal guardianship for the child, which results in expense.
2. Mental or Physical Issues of Beneficiaries
Is a designated beneficiary under some mental or physical disability? Is he or she receiving benefits from a state of the federal government? If so, you should explore the desirability of not leaving funds to that beneficiary directly, but instead establishing a "special needs trust" under which the funds may be used to improve the beneficiary's life, but will not affect any benefits he or she may be receiving.
Some public benefits programs are needs-driven. If the beneficiary receives assets of more than a nominal amount, the beneficiary may no longer be entitled to receive public benefits. This could be a very serious result. For instance, if the beneficiary is denied access to the Medicare of Medicaid program, he or she may be unable to obtain health insurance from any source.
Haddleton & Associates will be glad to advise you about the requirements of various public benefits programs and the establishment of a special needs trust.
Your Children
Clients often ask whether they should leave their children equal amounts. There is no simple answer to this. This depends upon family dynamics, and upon your perception of the needs of your children.
You have no duty to leave a child anything. There has been a practice of leaving children one dollar or some other miniscule gift - this is not for the significance of the dollar, but is to show that the testator has not forgotten the child.
Tangible Personal Property In Your Will
There are two types of property - real and personal. Real property is land or anything attached to it. Personal property is everything else. Property which is on land, but not attached to it, is personal property - for example, a garden shed, which is movable, is personal property.
Personal property, in turn, is divided into two classes - tangible personal property and intangible personal property. Tangible personal property is anything which has intrinsic value - for example, a boat, an airplane, furniture, a bag of Spanish dubloons.
Intangible personal property is anything which does not have intrinsic value. For example, a stock certificate represents value, but is not in itself of significant value - it can be replaced if it is lost. A bank account represents a claim against the bank - it is nothing you can touch, but it does have value.
You may provide for the disposition of tangible personal property through a list which you prepare and leave with your will or in some other designated place for the direction of your executor. Your will should give your executor authority to dispose of the tangible personal property as he or she may determine best, if you do not leave a list or if a list cannot be found within a specified period of time, such as 30 days.
You may want to provide that your executor will be directed to pay packing and transportation expenses for tangible personal property. For example, if you leave your Bosendorfer piano to your niece who is studying music in San Francisco, the chances are that she would not be able to pay the cost of moving this marvelous musical instrument.
If you have a computer, do you want to specify in a list of instructions that your executor will erase the hard drive before delivering the computer to your designated beneficiary?
If you have a computer, is any of the material on the hard drive password-protected? If so, you may wish to leave password information on a list in your safe deposit box. This is particularly true if your executor may wish to access your computer in order to track some of your assets.
Is there any item of tangible personal property that is of particular importance to any family member? That should be specified in a list of tangible personal property, because what may appear to be an item of no ascertainable value (that's a nice way of saying, "a piece of junk") to your executor, may be of great sentimental value or other value to a member of your family or a friend.
Hidden Assets
Do you have any jewelry or other tangible personal property which is hidden in a secret spot in your home? Many people hide rings and other property so as to have it handy and not have to go to a safe deposit box to get it. Perhaps you could leave in your safe deposit box a letter that will contain, among other things, hiding places for any personal property.
Intangible Personal Property
Intangible personal property includes, among other things, bonds, stocks, insurance policies, and claims against other people.
Your Safe Deposit Box
Your executor is going to want to enter your safe deposit box to obtain anything of value in the box, including the lists and information referred to above. If your will is kept in your safe deposit box, then make sure that your executor has the right to enter the safe deposit box - he or she will need the will in order to start the probate proceedings. If the will is in your safe deposit box and your executor does not have the authority to enter the safe deposit box, it may be necessary to file a petition for administration (for an estate where there is no will) just to gain authority to get into the safe deposit box.
Leave a note as to where your safe deposit box is located, and where the key may be found. Note that most safe deposit box keys look alike, and that if your executor knows in what branch of what bank your safe deposit box may be found, he will be spared a lot of work trying to find your safe deposit box.
Where to Deposit Your Will
If your will is stored in your safe deposit box, and your executor is authorized to enter the box, make sure that if anyone else has the authority to enter the box, that person is not someone who might benefit if your will was not found.
For example, suppose that in your will you have disinherited one of your children. If your will could not be found, the result might be that your property would pass by intestacy, and all your children would participate in your estate. Thus, it might be desirable to make sure that the disinherited child would not have access to your safe deposit box.
You may deposit your will at the Registry of Probate for a small charge.
You may leave your will with your attorney for safekeeping. Haddleton & Associates holds many wills in our vault for clients. There is no charge for this service.
Life Insurance Policies
If you have policies of insurance on your own life, or on the life of someone else, it is important that your executor have a list of those policies, regardless of who is the beneficiary (in the case of policies on your life). The physical policies are not essential - the insurance policy is embodied in the application for the insurance and the acceptance by the company, which form a contract and which are found in the insurance company's files. The policy is simply a statement of the policy contract.
Policies of insurance in which you have "incidents of ownership" (that is, powers to deal with the insurance) will probably be part of your estate for estate tax purposes.
Life insurance policies are often kept in safe deposit boxes; however, the policies are not needed, so long as a list of the policy numbers is available.
Stock Certificates
A list of securities which you own should be available to your executor. The certificates should be kept in your safe deposit box. The certificates can be reissued if lost, but there will be an expense involved, in that you will probably have to provide an indemnity bond, so that if the security is later found, the issuer is protected against having to pay twice.
In some cases, certificates may be deposited with your broker, or there may be a book entry only, and you may not have a certificate. If this is the case, then it is especially important for your executor to have a list of the stock that you own.
Money Owed
Have you loaned any money to anybody? You should have a written promissory note or other document to reflect this. If this is an informal loan, it may be much more difficult for your executor to collect this money than it would for you to collect it.
Income Tax Returns
Past income tax returns should be available to your executor. The last four years of income tax returns, both state and federal, should be retained. Your executor will need a record of any installment payments you have made on estimated taxes for next year's income tax returns.
Gift Tax Returns
If you have ever filed any federal gift tax returns, copies should be available for your executor, since they will be relevant in filing the federal estate tax return, if one is due. In computing the tax due, the federal estate tax requires a consideration of gifts made during life.
Real Estate
List all real estate which you own, either in your own name alone or with someone else. If there is anything which your executor should know about the real estate, set that forth, also.
Business Interests
Do own a business, or do you have an interest in a business? If so, in your will your executor should be given whatever authority may be necessary to deal with that business interest.
A discussion of what needs to be done in the case of business interests is beyond the scope of this paper. Haddleton & Associates will be glad to furnish you with detailed information as to what is required if you own a business or part of a business.
Assets in the Name of Another Person
Do you own any property that is in the name of some other person, or in your name and that of another person? Such property might not readily show up if the executor were to search for it.
Leave a detailed statement about the property.
Checking and Savings Accounts
Leave a record of any checking or savings account you may own. Your executor will need this information in order to gather the assets and complete the Massachusetts and federal estate tax returns. Your executor will review prior income tax returns to see if any savings account information shows up there, but relatively dormant savings accounts may be missed.
Credit Cards
Prepare a complete list of credit cards, so that when the time comes to pay estate debts, your executor will be certain that he pays all of the card balances and that all of the cards are cancelled.
Fire and Casualty Insurance Policies
Your executor and your beneficiaries will want to review the amount of coverage, and this will expedite that process. Keep a list of policies where your executor can find them.
Gifts of a Specified Amount
Gifts of a certain amount to a beneficiary may be appropriate at one time. At another time, those gifts, if expressed simply in dollars, may warp your estate plan out of shape.
For example, assume that your estate is $950,000. You provide for a gift to a close friend of $50,000. The residue of your estate is left to your children. At that time $50,000 is a small part of your estate. Your intention is that the gift to your friend will be incidental - the real beneficiaries of your will are your children.
You then make gifts, or incur expenses, or the stock market stumbles, and your estate dwindles to $200,000. The amount of $50,000 would then be twenty-five per cent of your estate - is that what you would want?
Consider ways to make the gift fit changing circumstances. For instance, you could change the wording to "a gift of $50,000 or 5% of my estate, whichever is less." Or you could provide that if your estate is less than a certain amount, all of the specific gifts will be stricken.
And, of course, you have to be careful to specify whether your measuring stick is your gross estate, your estate after debts and expenses, or your estate after debts and expenses and taxes.
Consider the Impact of Taxes
Assume that you have an estate of $2,000,000. You want to leave your house in Cotuit, which is worth $500,000, to your brother, and the rest of your assets, $1,500,000, to your children. There will be a Massachusetts estate tax, but there will not be any federal estate tax, since the first $2,000,000 is not subject to tax. Your will provides that taxes shall be paid out of residue, which is to say, the rest of your assets.
Time goes by, and the Cotuit house increases in value to $1,500,000. The rest of your assets, securities, diminish in value to about $1,000,000.
Since the estate is now over $2,000,000, there will be a federal estate tax as well as a Massachusetts estate tax. These taxes will come out of the residue - the share of your estate which is going to your children. The total tax liability will be about $250,000, and it will all come out of your children's share. Is this what you intended?
Would it not have been better to provide that taxes would be apportioned - each beneficiary would bear his share? Or, perhaps, would it have been satisfactory to provide that all the taxes would come out of your brother's share?
Executor's Fees and Expenses
The person who serves as your executor is entitled to charge a fee. If your estate will not be subject to federal estate tax or Massachusetts estate tax, and you have a close relationship with your executor, you might want to suggest that you will leave the executor a sum of money in your will and your executor will not charge the estate for services.
While this would not be a binding agreement, it would be beneficial, in that anything which is received as a gift during life or under a will is not subject to income tax. Thus, for instance, if your executor charged a fee of $20,000 for services as executor, he or she would have to pay taxes on that amount - if there were a bequest to him or her in that amount, there would be no tax due.
In the case of an estate which is subject to the federal estate tax, the estate would be well serviced if the administration expenses were charged to the estate. An estate that is subject to the federal estate tax will pay taxes on the top amount at a rate in excess of 40%, which is more than the executor would pay in income taxes.
Prepaid Funeral Arrangements
Your executor should be informed about any prepaid funeral arrangements you have made, and your wishes with respect to your funeral. If you are planning to enter into a prepaid funeral arrangement, consider whether the payment will be transferable if you change your residence.
For example, if you purchase a prepaid funeral arrangement on Cape Cod, and you later decide to move to Naples, Florida, can your prepayment be used for services in Florida or can they be recovered by your executor?
Conclusion
This memorandum is a work in progress. We will be adding to it from time to time. Contact us and we will be glad to send you new editions as they are prepared.
