Losing a loved one is one of the most difficult experiences you will ever have, which is only compounded by having to handle their final affairs and their estate. There’s no doubt that dealing with a subject like the loss of a friend or family member is emotional, stressful, and a cause of great despair. When you get to be around my age, you have probably dealt with this kind of event far too often, and frankly no matter how many times you have, it is never a comfortable feeling.
There are many details that must be taken care of to make this kind of event orderly and to take care of all of the important details that the decedent wanted. This only adds an element of anxiety and pressure to an already stressful situation. Knowing what needs to be done can help to ease your mind.
You may have made some plans for a family member, and hopefully you have done all the proper steps to make that difficult time less burdensome. Things like a place for burial, making sure they have a written will, and who they would most like as an officiant when that time comes. Planning those things while people are alive and well is a lot easier for sure. I have experienced losing someone with a plan in place, and also the sudden loss of someone who didn’t have any plan, and I can testify that having a plan is always recommended.
But todays post is not just about how to plan for a loved one’s funeral. It is truly about what happens financially when a person dies, and what you may need to do to take care of the financial affairs of a decedent.
The Tax Situation
When a person dies, believe it or not, you must think about taxes. There are 3 things that must occur in regard to taxes:
- A final tax return must be filed for the decedent
- A value of the decedent’s assets should be tallied for estate tax purposes
- From the moment of passing, any income that the decedent would have received had he/she not died, must be reported on the fiduciary tax return
If the decedent owns a business, the value is to be calculated as of the day prior to death for tax purposes.
Gathering Estate Information
One of the most time-consuming aspects of handling the financial affairs of someone who has passed away is the gathering of all the financial information and other documents. For a lot of families this is very difficult because so many of us do not keep good records and/or plan well. Many actually lack knowledge as to where these critical documents are located.
It sounds like something difficult to do, but getting a file or even a locked fireproof box together with all the important documents, like life insurance policies, deeds, and a copy of the will is a good way to make this kind of search much easier. That’s something you can prepare long in advance.
Certified Copies of the Death Certificate
You will need multiple certified copies of the death certificate. No financial institution like an insurance company or a bank will pay any benefits or assets without certifiable proof of the death. The cost of these documents is negligible at the time of death but may be more costly later on if needed. If you are using a funeral home for arrangements, they often will give you several copies of the death certificate, but you can and should obtain them at local courts where the decedent lived.
In order to handle the affairs of the decedent, you will need authorization to act on the decedent’s behalf. As long as you obtain documents known as Letters Testamentary or Letters of Administration from the courts, you can represent the rights of the decedent.
Probate is the legal process which proves the decedent’s will is valid and addresses the debts and assets of the deceased. A surrogate court will examine the will to determine if it is valid and who to appoint as an executor or executrix. When someone dies and has a will, he is said to have died testate. If he dies without a will, it is called died intestate and state law will determine the distribution of assets.
Is probate necessary? If there are no assets in the decedent’s name, for example if all their assets were in a revocable living trust, were jointly owned or had pay-on-death beneficiaries assigned, then there is no need for probate. However, if the decedent had assets, the will needs to be probated regardless of the value of the assets. The executor or executrix will then have the authority to distribute all real and personal assets of the estate.
How to Probate a Will
The executor lists all the assets that are left in the will and divides them into categories like cash, investments, capital assets, and other assets like personal things. Prepare a list of beneficiary names and addresses (with ages if minors are involved) that are named in the will. If any named person in the will is deceased, locate the next of kin so that the estate can be settled.
The Executor and Their Duties
You become the executor of the estate when you are named in a will with that role. You do not have to accept that role, but do know that the deceased had the confidence in you to be the right person for this job.
If you accept the responsibility, you will be in charge of protecting the deceased person’s property until all taxes and debts have been paid. What is left will then be distributed to the people who are entitled to it.
After probate and receipt of the Letters of Testamentary or Administration you will have the following duties:
- Notify all relevant parties involved within 60 days of probate
- Locate the deceased’s assets and manage them until they are distributed to the beneficiaries
- Apply for any benefits due to survivors
- Pay all final bills and guard against any financial fraud
- Distribute any personal property according to the wishes of the decedent (if not specifically named, do so fairly)
- Set up an estate bank account
- Verify that insurance is in place on any properties in the estate
- File all tax returns (income, estate, and gift) when due
- Pay the taxes – a final return must be filed covering the period of the beginning of the tax year to the date of death, both state and federal returns may be required (check your state rules), a fiduciary tax return may have to be filed even if there is no income generated by the estate
There are severe penalties for failure to file any tax returns unless there are reasonable causes.
Executor Liability Insurance
Finally, I’d recommend considering liability insurance also known as error and omissions insurance (E&O). The executor has a lot of responsibility and they can be personally sued by any heir that feels that they may have been shortchanged in the process of the distribution.
While this isn’t the most pleasant subject to think about or discuss with your loved ones, I can honestly say that it is a necessary discussion for everyone at some point in life. If you are a young person, you probably don’t think about the day that may come when you have to deal with your parent’s estate and funeral. That is even truer when it comes to a parent and the occurrence of a child’s death.
Reviewing the plan way ahead of its need is a smart thing to do. Planning the procedures for a funeral under pressure is so very difficult that doing it when you can discuss the options with all parties just makes so much sense.
Having your will in place and all of your documents in order is the best thing to do to help your loved ones make sure your wishes are all truly carried out.
Have you thought about you responsibilities of being an executor? Are you prepared for taking such responsibilities on? Have you planned your own will and organized your documents so that everything can go as you wish when you pass on?