Sorting out a Life
Heirs. Creditors. The IRS. How to handle them all if it's up to you to settle an estate.
By Kristin W. Davis
December 2003
In a 30-year career as a bank trust-department officer -- and as executor of scores of estates -- Sherry McGillicuddy has seen enough disappearing assets that she frequently changes the locks on clients' houses when they die. In one case, she came across a woman's sons in a fistfight on the front lawn. "One of the wives had a crowbar trying to get in the front door, and the other was up on a ladder trying to get in a window," says McGillicuddy, who is executive vice-president of Frost National Bank, in Austin, Tex. Her job was to tell the snarling heirs that their mother had already carefully divided her possessions, marking each item with a sticker on which she'd written the name of one son or the other.
Unseemly as it may seem, it is a good idea to secure, or at least inventory, a deceased loved one's possessions early on, to avoid a free-for-all. "I had to stop them from carting off furniture," Holly Ocasio Rizzo, a San Clemente, Cal., resident, says of the "vulturous relatives" who showed up after her father's death in 2000.
And even if your family isn't the type to go to war over Grandma's silver, a death in the family sets off a long chain of sometimes delicate financial tasks that someone has to master, despite his or her grief. Where's the will? What bills have to be paid? What's the best way to distribute household possessions or sell stuff no one in the family wants? If you're the one who has to sort it all out, this guide is for you.
Where's the will?
You could be in for a hunt if it isn't tucked away in an obvious place, such as a desk drawer, file cabinet or home safe. Mary Sue Donohue, a trusts-and-estates lawyer in Boca Raton, Fla., says some people even store their will in the freezer, wrapped in foil to protect it from fire. If the will doesn't turn up at home, check the person's place of business or look for the name of a lawyer who might have a copy. To get into a deceased person's safe-deposit box at a bank, you generally need a key plus a copy of the death certificate.
Often, a will doesn't turn up at all. After Joanne Sammer's 72-year-old father died unexpectedly last year, she searched his desk in his house in Lakewood, N.J. She found "tons of old bills, canceled checks, check stubs and other financial flotsam," but no will. A funeral director steered her to a county Web site that spelled out how to handle the estate of someone who dies intestate, that is, without a will. "None of us had ever dealt with anything like this before. We were cowed by it all," says Sammer, who lives in Brielle, N.J. But even though she had to deal with the extra hassles of appearing in probate court and posting bond as a guarantee that she would faithfully handle the estate -- a requirement that can be waived in a will -- "once we got into it, it wasn't as bad as I expected," she says.
Where's the money?
If you're lucky, your loved one has left behind a tidy record of every mutual fund account, life-insurance policy and retirement asset, not to mention an inventory of household valuables. But more often "you're going through that person's file drawers, checkbooks, account statements, anything you can" to track down assets, says McGillicuddy. The best guide is the past three or four years' tax returns, which will show where interest and dividends have been paid or capital gains taken. But as you clean out drawers and boxes, also keep an eye out for canceled checks, deeds, stock and bond certificates, insurance policies, annuities, and evidence of employee benefits, such as a 401(k) or pension plan. Think of yourself as a detective out to deconstruct a financial life. If there's no sign of a life-insurance policy, for instance, look for a canceled check that might represent a premium payment.
Additional clues can be the name of an accountant or financial adviser in a Rolodex, PDA or old-fashioned address book. You might also seek out e-mails with financial statements attached, a spreadsheet or other computer files that might list assets.
In extreme cases you may need to search public records. If you know someone had three acres of land in Kentucky, for instance, you can search deed records at the county clerk's office, says McGillicuddy. Personal effects are usually easy to find, but not always. McGillicuddy tells of a case in which a woman's jewelry went missing for two years. "We couldn't find any of the rings she wore every day," or her diamond earrings. "It was a total mystery," the trust officer recalls -- until the woman's daughter changed a roll of toilet paper one day. The jewelry was wrapped in tissue and stuffed inside the spindle of the toilet-paper holder. Apparently, that's where her mother hid the gems every night.
A PARTING GIFT: ORGANIZATION
State treasuries hold some $23 billion in unclaimed assets, much of it stocks, bonds, bank accounts, and real-estate and insurance proceeds that are abandoned because the owner died without leaving a paper trail. If your own family would have trouble locating all of your assets, do them the favor of recording what you own and where it resides. Yes, pen and paper or a simple computer spreadsheet will do. But if you need a nudge, a fill-in-the-blank workbook or software program can get you organized. Our favorites:
The Beneficiary Book (Active Insights, $29.95). The three-ring-binder format lets you add your own documents along with the detailed worksheets supplied.
Personal RecordKeeper 5 (Nolo, $35.97). This software program gathers even more exhaustive detail for your heirs, and can generate a net-worth statement or create a household inventory for your own use.
Your Family Records Organizer (Kiplinger's, $14.95). The software records everything from the location of your brokerage account to your home-safe combination and the kids' allergies and medications.
What's it worth?
It's not hard to place a dollar value on stocks, mutual funds and other financial assets, though you'll need to research share prices as of the date of death. You don't have to worry about what the deceased paid for investments because the tax basis is stepped up to date-of-death value. But what's an antique breakfront worth? Or a baseball-card collection? For IRS purposes, you're supposed to determine the property's fair-market value (the price a buyer would be willing to pay), which may bear no relationship to what an item originally cost. A dining-room table purchased for $15,000, for instance, might net $800 at auction, says Roger Hall of Hall Hanley, a Pittsburgh company that specializes in liquidating estates. It's smart to seek appraisals for valuable jewelry, furs, antiques and collectibles, not just for Uncle Sam but to ensure that such items are distributed equitably or that the estate gets fair value for them if they're sold. For the IRS, personal items that are not particularly valuable can be grouped under the general heading "Furniture, furnishings and personal effects" and given a lump-sum value, says Julia Nissley in her book, How to Probate an Estate in California (Nolo Press, $49.99).
Debts of the deceased
My relatives were under the mistaken impression that you could walk away from the debts," says Holly Rizzo. You can't.
Before any money can be distributed to heirs, creditors get first crack at the estate. (Assets that pass directly to a named beneficiary, such as life insurance, an IRA or a pay-on-death bank account, for instance, are notable exceptions.) If necessary, hard assets should be sold to raise the cash needed to pay off debts.
Finding debts usually isn't difficult. "Creditors are not shy about finding you," says McGillicuddy. Nonetheless, state laws generally require you to notify creditors of the death and even to post a notice in a local newspaper.
What happens then can be unpredictable. When her daughter died unexpectedly in 2002 with substantial debt, Marilyn Willenbrink of Bluffton, S.C., sent letters to each creditor. Several never bothered to make claims against the estate, including one credit-card issuer that was owed $16,000. A utility company, however, made a claim for $63.
Family members are not expected to foot the bill for debts that exceed estate assets, but one credit-card company nonetheless asked Willenbrink to pay up. "Anyone could be quite intimidated by that," she says. "Fortunately, I knew I was not responsible for the bill."
If there's not enough money to pay all the debts, certain creditors get priority, depending on state law: The funeral home, the IRS and health-care providers all get paid before credit-card issuers, for instance. If the estate is insolvent, you'll need the help of a probate lawyer to sort out who should get how much.
Unfinished business
What if a family member dies before completing a real-estate transaction or before fulfilling the terms of some other financial contract? Generally, the executor is obliged to follow through on contractual obligations. Donohue, for instance, had a contract to buy a house from a woman who died before the transaction closed. The family wanted to back out of the deal, but she successfully sued to complete the sale.
But sometimes you can appeal to reason. Rizzo says that her father's landlord tried to keep the security deposit on his apartment, arguing that he had broken the 12-month lease. But Rizzo objected to the management company and got the money returned to her father's estate.
Now, who gets what?
Sometimes a will is very specific, leaving the jewelry to one heir and the oriental rugs to another. But often, the will leaves property to heirs in "equal shares," requiring family members to find a way to choose for themselves.
In one estate McGillicuddy handled, a woman's will instructed her to give Monopoly money to each of four daughters and then to conduct an "auction" to determine who inherited which items. But families often do fine with a simple get-together in which each heir chooses an item in turn, either pulling names from a hat to determine who goes first or choosing by birth order, says Donohue. If the heirs choose items that aren't equal in value, sometimes there's a cash distribution to even things out.
"It can be a delicate process," says McGillicuddy. "Most families are dysfunctional to some degree, and they have emotional baggage they're bringing along."
What to do with what's left?
If the remainder is modest, you may want to hold a tag sale or simply give household items and clothes to charity. "I would have loved to have held a yard sale or an estate sale," says Rizzo, but "we sold everything to a secondhand-furniture store."
If there are numerous valuable items, such as artwork or collectibles, it may simplify your life to hire an estate-liquidation company to do the work for you. Hall Hanley, in Pittsburgh, for instance, can help inventory assets, arrange for appraisals, ship goods to family members, and sell or auction items no one in the family wants to keep. The cost can run several thousand dollars but is worth it if you'd otherwise have to coordinate those efforts from out of town. You can even auction the house.
As for automobiles, if they aren't left to anyone in particular, they can be included in the property that is distributed among heirs, or they can be sold, with the proceeds going to the estate. (Either way, you will have to change the title with the local department of motor vehicles.)
Hiring help
Joanne Sammer was able to handle her father's estate -- even absent a will -- without hiring any outside help. Rizzo, who lives in San Clemente, Cal., paid a probate attorney about $500 to handle most of the paperwork required to settle her father's estate in Cottonwood, Ariz. Willenbrink was not only out-of-state but also needed legal counsel for handling creditors. She paid a Tennessee lawyer $1,800 in fees.
You could spend much more if you need help with a more complicated estate -- one with, say, a closely held business, limited partnerships, or oil and gas investments (anywhere from $2,500 to $25,000 for an estate of $1 million or less, says Donohue). You may also need legal help if anyone in the family is likely to contest the will. Another option is to hire a bank trust department to serve as your agent and handle all the details. That could cost as much as 1% to 3% of the estate.
However, there are intangible rewards to doing the job yourself. "It's as if you're doing the last service for your dead relative," says Rizzo. "It takes your mind off the grief a little."
--Reporter: Joan Goldwasser
IN CASE OF DEATH: A to-do list for those left behind
In the initial weeks after a family member dies -- long before you distribute assets or pay off creditors -- someone needs to tackle the following tasks. Most usually fall to the estate's executor.
Get death certificates. Estimate how many you need and ask for twice as many, suggests Ann Perry, author of The WI$E Inheritor (Broadway Books, $12.95). You'll need certified copies to claim insurance proceeds and to transfer money out of bank, brokerage and mutual fund accounts, among other things. Twenty is not an unreasonable number, says Perry. You'll save yourself trouble by letting the funeral home get them for you.
Have the mail forwarded. The bills and financial statements that come in the mail are often the most reliable way to find all the deceased person's assets and debts. The mail will also be your trigger to cancel newspaper and magazine subscriptions, cable-TV service and other recurring expenses, and to request refunds where appropriate.
Hold the bills. Before you pay even the phone bill, the executor needs to determine if there are enough assets to cover all bills and expenses. If not, creditors have to line up -- with state law determining which have priority. (An exception: If a survivor continues to live in a home, you should continue to pay the mortgage and utility bills.)
Open a bank account. You'll need a place to deposit interest and life-insurance proceeds, and from which to pay bills for the estate.
Apply for a taxpayer-ID number. The IRS considers the deceased person and his or her estate to be separate taxpaying entities. So you'll need a separate tax-identification number to file tax returns for the estate, which will account for dividends, interest and capital gains on the deceased person's assets during the administration of the estate. (You can skip this if the income is less than $600.) You'll also need to file final federal and state income-tax returns, accounting for your family member's earnings until the date of death. A federal estate-tax return is due if assets in the estate exceed $1 million in 2003 (that figure jumps to $1.5 million in 2004 and 2005).
Notify social security. If the person was receiving social security benefits, you'll have to return the check for the month he or she died, even if the death occurred at the end of the month.
Buy a notebook. "Immediately start writing everything down," advises Florida attorney Mary Sue Donohue, such as who you talked to at the insurance company and the bank. "There's a lot to keep track of," she says.
Heirs. Creditors. The IRS. How to handle them all if it's up to you to settle an estate.
By Kristin W. Davis
December 2003
In a 30-year career as a bank trust-department officer -- and as executor of scores of estates -- Sherry McGillicuddy has seen enough disappearing assets that she frequently changes the locks on clients' houses when they die. In one case, she came across a woman's sons in a fistfight on the front lawn. "One of the wives had a crowbar trying to get in the front door, and the other was up on a ladder trying to get in a window," says McGillicuddy, who is executive vice-president of Frost National Bank, in Austin, Tex. Her job was to tell the snarling heirs that their mother had already carefully divided her possessions, marking each item with a sticker on which she'd written the name of one son or the other.
Unseemly as it may seem, it is a good idea to secure, or at least inventory, a deceased loved one's possessions early on, to avoid a free-for-all. "I had to stop them from carting off furniture," Holly Ocasio Rizzo, a San Clemente, Cal., resident, says of the "vulturous relatives" who showed up after her father's death in 2000.
And even if your family isn't the type to go to war over Grandma's silver, a death in the family sets off a long chain of sometimes delicate financial tasks that someone has to master, despite his or her grief. Where's the will? What bills have to be paid? What's the best way to distribute household possessions or sell stuff no one in the family wants? If you're the one who has to sort it all out, this guide is for you.
Where's the will?
You could be in for a hunt if it isn't tucked away in an obvious place, such as a desk drawer, file cabinet or home safe. Mary Sue Donohue, a trusts-and-estates lawyer in Boca Raton, Fla., says some people even store their will in the freezer, wrapped in foil to protect it from fire. If the will doesn't turn up at home, check the person's place of business or look for the name of a lawyer who might have a copy. To get into a deceased person's safe-deposit box at a bank, you generally need a key plus a copy of the death certificate.
Often, a will doesn't turn up at all. After Joanne Sammer's 72-year-old father died unexpectedly last year, she searched his desk in his house in Lakewood, N.J. She found "tons of old bills, canceled checks, check stubs and other financial flotsam," but no will. A funeral director steered her to a county Web site that spelled out how to handle the estate of someone who dies intestate, that is, without a will. "None of us had ever dealt with anything like this before. We were cowed by it all," says Sammer, who lives in Brielle, N.J. But even though she had to deal with the extra hassles of appearing in probate court and posting bond as a guarantee that she would faithfully handle the estate -- a requirement that can be waived in a will -- "once we got into it, it wasn't as bad as I expected," she says.
Where's the money?
If you're lucky, your loved one has left behind a tidy record of every mutual fund account, life-insurance policy and retirement asset, not to mention an inventory of household valuables. But more often "you're going through that person's file drawers, checkbooks, account statements, anything you can" to track down assets, says McGillicuddy. The best guide is the past three or four years' tax returns, which will show where interest and dividends have been paid or capital gains taken. But as you clean out drawers and boxes, also keep an eye out for canceled checks, deeds, stock and bond certificates, insurance policies, annuities, and evidence of employee benefits, such as a 401(k) or pension plan. Think of yourself as a detective out to deconstruct a financial life. If there's no sign of a life-insurance policy, for instance, look for a canceled check that might represent a premium payment.
Additional clues can be the name of an accountant or financial adviser in a Rolodex, PDA or old-fashioned address book. You might also seek out e-mails with financial statements attached, a spreadsheet or other computer files that might list assets.
In extreme cases you may need to search public records. If you know someone had three acres of land in Kentucky, for instance, you can search deed records at the county clerk's office, says McGillicuddy. Personal effects are usually easy to find, but not always. McGillicuddy tells of a case in which a woman's jewelry went missing for two years. "We couldn't find any of the rings she wore every day," or her diamond earrings. "It was a total mystery," the trust officer recalls -- until the woman's daughter changed a roll of toilet paper one day. The jewelry was wrapped in tissue and stuffed inside the spindle of the toilet-paper holder. Apparently, that's where her mother hid the gems every night.
A PARTING GIFT: ORGANIZATION
State treasuries hold some $23 billion in unclaimed assets, much of it stocks, bonds, bank accounts, and real-estate and insurance proceeds that are abandoned because the owner died without leaving a paper trail. If your own family would have trouble locating all of your assets, do them the favor of recording what you own and where it resides. Yes, pen and paper or a simple computer spreadsheet will do. But if you need a nudge, a fill-in-the-blank workbook or software program can get you organized. Our favorites:
The Beneficiary Book (Active Insights, $29.95). The three-ring-binder format lets you add your own documents along with the detailed worksheets supplied.
Personal RecordKeeper 5 (Nolo, $35.97). This software program gathers even more exhaustive detail for your heirs, and can generate a net-worth statement or create a household inventory for your own use.
Your Family Records Organizer (Kiplinger's, $14.95). The software records everything from the location of your brokerage account to your home-safe combination and the kids' allergies and medications.
What's it worth?
It's not hard to place a dollar value on stocks, mutual funds and other financial assets, though you'll need to research share prices as of the date of death. You don't have to worry about what the deceased paid for investments because the tax basis is stepped up to date-of-death value. But what's an antique breakfront worth? Or a baseball-card collection? For IRS purposes, you're supposed to determine the property's fair-market value (the price a buyer would be willing to pay), which may bear no relationship to what an item originally cost. A dining-room table purchased for $15,000, for instance, might net $800 at auction, says Roger Hall of Hall Hanley, a Pittsburgh company that specializes in liquidating estates. It's smart to seek appraisals for valuable jewelry, furs, antiques and collectibles, not just for Uncle Sam but to ensure that such items are distributed equitably or that the estate gets fair value for them if they're sold. For the IRS, personal items that are not particularly valuable can be grouped under the general heading "Furniture, furnishings and personal effects" and given a lump-sum value, says Julia Nissley in her book, How to Probate an Estate in California (Nolo Press, $49.99).
Debts of the deceased
My relatives were under the mistaken impression that you could walk away from the debts," says Holly Rizzo. You can't.
Before any money can be distributed to heirs, creditors get first crack at the estate. (Assets that pass directly to a named beneficiary, such as life insurance, an IRA or a pay-on-death bank account, for instance, are notable exceptions.) If necessary, hard assets should be sold to raise the cash needed to pay off debts.
Finding debts usually isn't difficult. "Creditors are not shy about finding you," says McGillicuddy. Nonetheless, state laws generally require you to notify creditors of the death and even to post a notice in a local newspaper.
What happens then can be unpredictable. When her daughter died unexpectedly in 2002 with substantial debt, Marilyn Willenbrink of Bluffton, S.C., sent letters to each creditor. Several never bothered to make claims against the estate, including one credit-card issuer that was owed $16,000. A utility company, however, made a claim for $63.
Family members are not expected to foot the bill for debts that exceed estate assets, but one credit-card company nonetheless asked Willenbrink to pay up. "Anyone could be quite intimidated by that," she says. "Fortunately, I knew I was not responsible for the bill."
If there's not enough money to pay all the debts, certain creditors get priority, depending on state law: The funeral home, the IRS and health-care providers all get paid before credit-card issuers, for instance. If the estate is insolvent, you'll need the help of a probate lawyer to sort out who should get how much.
Unfinished business
What if a family member dies before completing a real-estate transaction or before fulfilling the terms of some other financial contract? Generally, the executor is obliged to follow through on contractual obligations. Donohue, for instance, had a contract to buy a house from a woman who died before the transaction closed. The family wanted to back out of the deal, but she successfully sued to complete the sale.
But sometimes you can appeal to reason. Rizzo says that her father's landlord tried to keep the security deposit on his apartment, arguing that he had broken the 12-month lease. But Rizzo objected to the management company and got the money returned to her father's estate.
Now, who gets what?
Sometimes a will is very specific, leaving the jewelry to one heir and the oriental rugs to another. But often, the will leaves property to heirs in "equal shares," requiring family members to find a way to choose for themselves.
In one estate McGillicuddy handled, a woman's will instructed her to give Monopoly money to each of four daughters and then to conduct an "auction" to determine who inherited which items. But families often do fine with a simple get-together in which each heir chooses an item in turn, either pulling names from a hat to determine who goes first or choosing by birth order, says Donohue. If the heirs choose items that aren't equal in value, sometimes there's a cash distribution to even things out.
"It can be a delicate process," says McGillicuddy. "Most families are dysfunctional to some degree, and they have emotional baggage they're bringing along."
What to do with what's left?
If the remainder is modest, you may want to hold a tag sale or simply give household items and clothes to charity. "I would have loved to have held a yard sale or an estate sale," says Rizzo, but "we sold everything to a secondhand-furniture store."
If there are numerous valuable items, such as artwork or collectibles, it may simplify your life to hire an estate-liquidation company to do the work for you. Hall Hanley, in Pittsburgh, for instance, can help inventory assets, arrange for appraisals, ship goods to family members, and sell or auction items no one in the family wants to keep. The cost can run several thousand dollars but is worth it if you'd otherwise have to coordinate those efforts from out of town. You can even auction the house.
As for automobiles, if they aren't left to anyone in particular, they can be included in the property that is distributed among heirs, or they can be sold, with the proceeds going to the estate. (Either way, you will have to change the title with the local department of motor vehicles.)
Hiring help
Joanne Sammer was able to handle her father's estate -- even absent a will -- without hiring any outside help. Rizzo, who lives in San Clemente, Cal., paid a probate attorney about $500 to handle most of the paperwork required to settle her father's estate in Cottonwood, Ariz. Willenbrink was not only out-of-state but also needed legal counsel for handling creditors. She paid a Tennessee lawyer $1,800 in fees.
You could spend much more if you need help with a more complicated estate -- one with, say, a closely held business, limited partnerships, or oil and gas investments (anywhere from $2,500 to $25,000 for an estate of $1 million or less, says Donohue). You may also need legal help if anyone in the family is likely to contest the will. Another option is to hire a bank trust department to serve as your agent and handle all the details. That could cost as much as 1% to 3% of the estate.
However, there are intangible rewards to doing the job yourself. "It's as if you're doing the last service for your dead relative," says Rizzo. "It takes your mind off the grief a little."
--Reporter: Joan Goldwasser
IN CASE OF DEATH: A to-do list for those left behind
In the initial weeks after a family member dies -- long before you distribute assets or pay off creditors -- someone needs to tackle the following tasks. Most usually fall to the estate's executor.
Get death certificates. Estimate how many you need and ask for twice as many, suggests Ann Perry, author of The WI$E Inheritor (Broadway Books, $12.95). You'll need certified copies to claim insurance proceeds and to transfer money out of bank, brokerage and mutual fund accounts, among other things. Twenty is not an unreasonable number, says Perry. You'll save yourself trouble by letting the funeral home get them for you.
Have the mail forwarded. The bills and financial statements that come in the mail are often the most reliable way to find all the deceased person's assets and debts. The mail will also be your trigger to cancel newspaper and magazine subscriptions, cable-TV service and other recurring expenses, and to request refunds where appropriate.
Hold the bills. Before you pay even the phone bill, the executor needs to determine if there are enough assets to cover all bills and expenses. If not, creditors have to line up -- with state law determining which have priority. (An exception: If a survivor continues to live in a home, you should continue to pay the mortgage and utility bills.)
Open a bank account. You'll need a place to deposit interest and life-insurance proceeds, and from which to pay bills for the estate.
Apply for a taxpayer-ID number. The IRS considers the deceased person and his or her estate to be separate taxpaying entities. So you'll need a separate tax-identification number to file tax returns for the estate, which will account for dividends, interest and capital gains on the deceased person's assets during the administration of the estate. (You can skip this if the income is less than $600.) You'll also need to file final federal and state income-tax returns, accounting for your family member's earnings until the date of death. A federal estate-tax return is due if assets in the estate exceed $1 million in 2003 (that figure jumps to $1.5 million in 2004 and 2005).
Notify social security. If the person was receiving social security benefits, you'll have to return the check for the month he or she died, even if the death occurred at the end of the month.
Buy a notebook. "Immediately start writing everything down," advises Florida attorney Mary Sue Donohue, such as who you talked to at the insurance company and the bank. "There's a lot to keep track of," she says.
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