Are you a successor trustee after grantor trustee died ?- 5 Helpful hints to keep the family from imploding
Dividing an estate is always difficult. Dividing it with other family members is most of the time a recipe for disaster.
When I was studying at UC Irvine for my CFP exam, our estate planning professor told us not to accept a nomination as a trustee. In his opinion it was never worth it! He says he has seen too many families torn apart, friendships lost and in the worst case scenario: lawsuits abound.
Naturally there are other points of view as it is ALWAYS an honor to know that the grantor thought that you were honest and dependable to deal with his or her estate!
From my experience as a financial coach to successor trustees, these five steps lead to an efficient, equitable and fair process of executing a will or managing and dividing a living trust assets after the original trustee passes on:
DISCLOSURE: I AM NOT A CPA OR ESTATE PLANNING ATTORNEY. I AM NOT ALLOWED TO GIVE LEGAL OR TAX ADVICE. THIS BLOG’S PURPOSE IS TO HELP YOU IN INTER-PERSONAL ISSUES THAT COME UP AFTER SOMEONE DEAR TO YOU PASSES ON. IT IS NOT TO BE TAKEN AS LEGAL OR TAX ADVICE. THANKS!
1. As a successor trustee of a living trust or an executor of a will you really only do what the underlying documents order you to do. This is a very crucial point to communicate to the heirs and beneficiaries so they understand you are ONLY a messenger of the person who passed on. You don’t get to make the rules. You follow them to the letter.
2. Sit down with the other (principal) heirs, ora co-successor trustee, find out how each of you sees the estate being divided. Compare that with the trust documents. Set the intention. What do you want to see at the end of the process?
- People I have coached have come up with goals like these :
o to keep peace and still be friends and have respect for each other after the trust closes.
o to save time and therefore liquidate everything as soon as possible and divide the cash. Or:
o to take time to go through all possible valuables, communicate clearly what is included in estate tax return, and what will be sold, what donated and what kept for personal use or enjoyment.
o to keep emotions out of the process. List trigger points and talk them through before the start of the process.
3. After each person drafts their favorite outcome scenario, then come together and compare where they agree and where they differ. Then make compromises and write them into an agreement or policy. Each person needs to share his/her view on what order to liquidate assets to gain cash for estate taxes and what the timeline is: are you filing for extension?
4. If the estate has art, real estate, securities, personal valuables such as jewelry and other collectibles, it is important to discuss how each trustee/ beneficiary wants to see these items divided. - Whether or not there should be two valuation ledgers: one for tax purposes, the other for making sure the division of property is fair and equal to all heirs.
i. Sometimes it is not so important to get evaluations of every piece of property in a household, since the value can be in the eye of the beholder. However, if there is no receipt as what the original grantor paid and if the heirs are not planning to sell, you need a guideline as to what to do in these situations.
ii. The other consideration is how much estate taxyou want to pay? Do you want to pay taxes on the china your grandma held dear? It might have no resale value, do you want to pay tax on emotional value?
iii. Tax evaluation of a security is totally different than evaluation for fair and equitable distribution. IRS’s value at the date of death is determined on how much cash the estate would gain if sold on that day. This price depends on demand, current interest rates, economy, etc., and differs from the value that an individual heir would place on it . For example, how many more years a bond pays interest and if we believe that the income stream it provides has special subjective value due to low risk, expectation of low inflation, quality of the payer etc. etc.
5. A good estate settlement policy should state that a piece of art or other personal property will be sold if its value reaches a certain threshold. I’ve seen the limit set at $5,000 or $10,000, depending on the size of the estate. For example, the policy could read: “Any item that is believed to have a value of $10,000 or more is going to be professionally evaluated and sold.” - Keep in mind that whatever is evaluated or sold is going in the books that IRS might audit.
Also always have a Second opinion on appraisals. If you use a full service company to clear the entire estate, you will get less than if you delegate between consolidators. - Old people hide valuables. Do not let the consolidator take everything before you do a bit of detective work on certain shoe boxes and coffee cans...
As a Best Practice, I’ve seen a family go together to the home to be divided, and each person was given different color stickers. Then everyone went around and put their color sticker on items they wanted. If an item got more than one sticker, they were subject to a coin-toss. After all was divided this way, they would sit together and see if it looked like the division was fair. If someone’s articles were more valuable, it was written down and the difference was either negotiated in items or cash at the end of the estate settlement process.- This might require a neutral person or estate planning coach in the room!
Attorneys and CPAs need to protect themselves and will put you through many hoops to "save' you from worst case scenarios. Keep your common sense and know that sometimes it’s best to gather courage to just tell them no. Ultimately it is your choice and it’s definitively your reputation that is on the line. Since you take full responsibility, listen to the lawyers but make your own, informed decisions. And don’t act out of fear! Dividing an estate is a stressful event. It is important to keep emotions out of the picture. Communication and compassion are the key. Some day you’ll get it all done and when you look back after a few years, you’ll think it was a good experience after all!