A family member passing away is difficult enough without the added stress of having to make critical financial decisions during the grieving process. For many, the tasks and responsibilities of probating a loved one’s estate are overwhelming, if not impossible. The probate process is time-consuming (often a year or longer!), complicated, and more often not, very frustrating. And along with all these “benefits” comes the financial and emotional cost. If you have been named as an executor or administrator of a family member’s estate, you’ll want to avoid these common mistakes:
1. Mishandling Assets
One of the first tasks for an executor or personal representative is securing all of the decedent’s assets. This particular task requires different steps/actions for different types of assets. For example, financial accounts may simply need to be closed, whereas the home might require making sure the property is secure, keeping it maintained, and paying bills such as utilities, insurance, and property taxes, to avoid loss while the estate is settled. Is the decedent’s car insured? Did the decedent take the minimum required distribution from his or her IRA? Did someone take possession of assets (cash, personal property, precious metals, etc.) that should be part of the probate estate?
2. Mischaracterizing Assets
As mentioned above, while some assets must go through probate, others do not. When an executor or administrator creates an inventory assets, it is important that he or she categorizes them properly. Assets that are not typically subject to probate include:
- Trust assets
- Assets/accounts with beneficiary designations (e.g. POD/TOD accounts, life insurance, IRAs)
- Property held jointly with another.
Note that probate fees are often determined as a function of assets that pass as part of the probate estate. But knowing that attorneys often advise on the estate as a whole, some courts have attorney fee formulas that include a certain percentage of assets that pass outside of probate too.
3. Not Determining “Date of Death” Values
“Date of Death” values refer to the fair market value of each estate asset at the time of the decedent’s passing. This is true of probate and non-probate assets. The sooner this task is done, the easier it is to determine the correct value. Executors often turn to professional appraisers for assistance with this task. “DoD” value is also critical for beneficiaries who may later sell assets and will need to determine and report capital gains.
This is Part 1. We’ll revisit this with more common mistakes in Part 2, coming soon.