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It's a Tough Job,
But Somebody's Got to Do It:
Where to Start
Social Diary Wealth Management Columnist Martin
S. "Duke" Johnson
Duke Johnson JD MBT CLU, - Column #2, April 2nd, 2006
Call of Duty
Ok, you are the dutiful son or
savvy daughter, and when Dad asks you to be executrix and trustee
for their estate, you say "sure, no problem!" Wow, had
you only known. In most cases executors and trustees
have different responsibilities so being in both roles is most
efficient. Most estates are straightforward, and as following
figure indicates, about 71% of IRS estate tax returns are valued
at less than $2.5 million. With the current estate tax exclusion
level at $2 million, most estates will be tax-free. IRS statistics
indicate the number of taxable estate tax returns amounted to
1.2% to 2.3% of total adult deaths in recent years.
So what's the big deal?
Well, even in modest estates, the executor is charged with finding
and taking inventory of all estate assets. Bank, investment accounts,
deeds to property, insurance, retirement benefits, et al. If real
estate, private corporate stock, partnerships, and other ventures
are involved, you just got a full time job. All assets must be
re-titled, some sold, some appraised, some used to settle debts;
and then you must file income and estate tax returns.
The trustee's role, if all estate assets
are in a trust, is similar to that of the executor with additional
"Fiduciary Standards." Investment of assets is critical,
along with the distributions to beneficiaries. This is where the
I dislike the word "dysfunctional,"
especially when applied to families, as "psych types"
love to label all behavior. Trustees may face tough investment
decisions and friction among family members --"sell the home;
I want cash now," or "don't you dare sell the dining
room furniture; I want it shipped to Boston now."
Health conditions, substance abuse problems,
kids of divorced parents, and on and on. This is not a responsibility
to take on lightly, yet we don't want to deal with a stranger
from a bank trust department. Having served in these roles on
more than one occasion, and having helped numerous clients with
estate administration, let me share with you some inside tips
to implement before a death:
1. Family Meeting
You cannot really be effective as an executor
or trustee unless you have a meeting with your parents regarding
their finances and what they want to achieve with their estate.
" 71% of seniors said they would be
very comfortable if their kids asked about wills and trusts.
" Only 49% of adult children report knowing a great deal
about their parents' estate.
" 50% of parents say it's important to leave a legacy, and
86% say they have a will or estate plan.
Open this critical family discussion with
a comment about your parents' "legacy" or your experience
in setting up your own estate plan, or a meeting with Duke. Blame
2. Request GPS Form
You know, Global Positioning System, or
"where to find anything"--a special document which catalogs
all assets, benefits, people, property, contacts, etc.
Start with our own "Life Crisis File,"
then move up to our special "Inheritance Letter" that
outlines "all you need to know when I'm gone." Call
me so we can decide which tools will help you the most.
3. Outsource (Not to Bangladesh)
Draw on the resources available--check
with your parents as to which professionals they currently work
with, as they will probably be your best resources and will likely
have current files. CPAs can be most valuable, as tax returns,
valuations, and known tax traps are within their purview. We can
be of special assistance in determining investment choices, cost
basis of old stocks, merger/acquisition information, and solid
investment counsel on the critical task of determining assets
4. Deal With Problem Beneficiaries
Ask parents or grandparents to hand write
a letter of direction to all beneficiaries, spelling out exactly
who gets what in no uncertain terms. Don't leave it up to me to
decide who gets the antique auto, Cropsey's paintings, or the
Wedgewood china. All the rest consign to eBay!
5. Set Hard Deadlines --Keep Meticulous
This is a JOB. Even if there is no bond
required or you receive no compensation, treat it as if the IRS
will audit the estate.
Keep track of hours spent on estate matters,
travel/mileage, and expenses. Prepare accounting for all beneficiaries.
Estate tax returns are typically due within
nine months of the date of death. Keep the estate accounts open
for six to eight months for any surprise creditor bills, taxes,
etc. Hold cash to meet expenses, taxes, and immediate payments
to charities or family beneficiaries.
All you can do is your best! And most beneficiaries
won't realize or appreciate all you've done. But that's why you
were asked to serve! Cheers for you!
Martin S. "Duke" Johnson is the President &
Chief Investment Officer of La
Jolla Institute for Wealth Management. Johnson's
credentials include: JD, University of Connecticut School of Law;
MBA (Tax) Golden Gate University, San Francisco; BA, Baldwin-Wallace
College, Berea, Ohio; CLU, American College, Bryn Mawr, Pennsylvania;
American, Connecticut & Colorado Bar Associations
Johnson has over 30 years of diversified experience in the fields
of investment counseling, taxation, insurance, estate planning,
and law. Previously, Mr. Johnson was Vice President of E.F. Hutton's
Personal Financial Management division and served in various investment
and management positions for Aetna Life & Casualty and INA
to New this Week........Duke
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