Estate Settlement Essentials

Transcription

1 Estate Settlemet Essetials

2 Estate Settlemet i Real Life O televisio ad i the movies, the passig of a loved oe ad all the fiacial implicatios that go alog with it are frequetly tied up i a eat bow. Family members grieve, atted a fueral, ad gather for the readig of the will. The attorey hads out checks to the beeficiaries ad the story seems to ed there. I reality, the aftermath of death is ofte more complicated. Eve the most straightforward estates iclude stacks of paperwork to complete, state ad federal statutes to avigate, family histories ad relatioships to cosider, ad assets to maage. Ad, depedig o how the estate pla was set up to move wealth ad possessios from oe geeratio to the ext, the terms of a trust may be just as importat or more so tha the words i the will. A Itroductio to the Estate Settlemet Process Dealig with the death of a loved oe is ofte quite complicated. Ad if you re the executor or trustee for the estate, this ca add a layer of complexity to a already challegig time. This guide provides helpful tips ad importat details o how to avigate the estate settlemet process. Ivestmets ad Isurace Products: Are NOT isured by the FDIC or ay other federal govermet agecy NOT a deposit of or guarateed by a bak or ay bak affiliate May Lose Value 3

3 Eve the most straightforward estates iclude stacks of paperwork to complete, state ad federal statutes to avigate, family histories ad relatioships to cosider, ad assets to maage. Estate Settlemet = Both Wills & Trusts Most people thik oly of wills ad probate whe they hear the phrase estate settlemet. However, revocable trusts have also become popular i estate plaig. Revocable trusts may or may ot replace the eed for probate, depedig o how the decedet s assets were titled at the time of their death. The followig chapters will provide guidace o how to avigate the complicated estate settlemet process if you have bee amed as a executor (i some states referred to as a persoal represetative) or a trustee. You ll also lear how to ask for help with estate issues, if you eed it. A few otes o terms: Whe we refer to estate settlemet i this guide, we are referrig to both optios: settlig a estate by probatig a will or by admiisterig a trust. Also, we will use the geeral term executor to refer to the perso or orgaizatio resposible for hadlig the decedet s fiacial matters after they pass. For a trust, the resposible idividual or orgaizatio is kow as the trustee. 5

4 Cotets Itroductio CHAPTER ONE Actig Durig a Time of Grief CHAPTER TWO Uderstad Your Resposibilities CHAPTER THREE The Role of a Executor CHAPTER FOUR The Role of a Trustee CHAPTER FIVE Death ad Taxes CHAPTER Six Maagig Family Dyamics CHAPTER Seve Commo Estate Settlemet Challeges 7

5 1 CHAPTER ONE Actig Durig a Time of Grief 9

6 1 ACTING DURING A TIME OF GRIEF 5 Fiduciary Duties of Executors ad Trustees 1 Put the beeficiaries iterests first. That meas excludig all of your persoal iterests i the estate ad carefully evaluatig all trasactios that might be cosidered coflicts of iterest. 2 Exercise reasoable care ad skill that a perso with good judgmet would be expected to exercise i his or her ow affairs. 3 Hadle geeral admiistrative duties of the estate or trust accordig to the documet s terms ad i accordace with state law. Beig amed the executor or trustee i a estate pla may seem a great hoor, but it is also a great resposibility. You are tasked to act ad make importat decisios at a time whe you may be dealig with your ow grief. You will be asked to faithfully implemet the decedet s fial wishes. I so doig, you will be held to a fiduciary stadard of care. Accordigly, whe maagig estate assets, you must remai faithful to the decedet s wishes as memorialized by the terms of the estate pla. You must also act i the best iterests of the estate ad the beeficiaries. 4 Be 5 Iform impartial ad cosider the iterests of both curret ad remaider beeficiaries whe makig decisios related to the estate s assets. Your decisios ad actios, icludig those related to beeficiary distributios, must be i accordace with the terms of the goverig documets. beeficiaries about the estate or trust o a regular basis. This may iclude providig statemets ad additioal iformatio upo request. 11

7 1 ACTING DURING A TIME OF GRIEF What About a Corporate Fiduciary? Aother optio that may help limit your legal exposure: Oce you kow you have bee amed the executor or trustee i a estate pla, ask the fried or loved oe who amed you whether they have amed a corporate fiduciary as well. A corporate fiduciary is a bak or trust compay that works with the executor or trustee to maage estate- or trust-related tasks. Havig a experieced fiacial professioal o your team may help you avoid potetial mistakes. First Five Thigs You Need To Do It ca be overwhelmig whe someoe passes. Whe tryig to balace your resposibilities as a executor or trustee with your emotios durig this difficult time, it s helpful to have a checklist of the immediate tasks that eed to be teded to i the first few days. Notify closest family ad frieds: Ask them to start a phoe tree to help you otify others. Do you eed a corporate fiduciary to help you maage your complex estate? Cosider these five questios: 1 How will I maage disposable assets? 2 Does the estate iclude a family busiess or a workig farm? Check o a survivig spouse: Ask other family members for help or cotact a professioal support agecy for assistace. 3 Are there multiple properties ivolved? 4 Are you likely to face family-ad plaig-related challeges? Cosider depedets ad pets: What immediate care or help do they eed? 5 How will your ow emotios affect estate decisios? If you aswered yes to ay of these questios, it may be worthwhile explorig the possibility of brigig a corporate fiduciary o board to help you settle the estate. Cotact the decedet s attorey (if they have oe) or a estate attorey: Begi to determie whether the estate has uique cocers with which you ll eed assistace. Call the decedet s employer: If he or she was still workig, request beefits ad pay iformatio. Ask for details o employer-sposored life isurace. 13

8 2 CHAPTER TWO Uderstad Your Resposibilities 15

9 2 UNDERSTAND YOUR RESPONSIBILITIES A importat role for ay executor (i the case of a will) or trustee (if there is a trust) is to marshal, value, ad preserve the assets of the decedet util they are disbursed. I fulfullig this role as the represetative of the estate or trust, you owe a fiduciary duty to both heirs ad creditors. Your Fiacial Resposibilities Bakig: Establish a accout for the estate or trust to hold all related cash ad securities. Accoutig: Maitai detailed records of all estate or trust receipts ad disbursemets. Paymets: Settle debts, hadle expeses, ad verify validity of all claims filed agaist the estate. Taxes & Disbursemets: Estimate ad raise cash for paymet of expeses, taxes, ad legacies. (For more o taxes, please click through to Chapter 5.) Maiteace: Hold cash ad securities subject to will or trust provisios. Negotiatios: Maage fee agreemets with attoreys, accoutats, appraisers, ad other professioals. You may fid it beeficial to egage a attorey to cousel you o some of these tasks. If the decedet s portfolio is complicated, you also may eed the help of a fiacial advisor, property maager, real estate broker, accoutat, ad several types of appraisers. You may also eed to: Moitor the ogoig quality of the decedet s ivestmet portfolio. Coordiate the sale of certai assets ad tagible persoal property. Check i with busiess etities that may be coected to the estate. 17

10 People To Notify Whe Someoe Passes For executors or trustees, oe of the most importat resposibilities is to otify all relevat parties about the passig of the decedet. After the fueral home has bee cotacted to arrage services, here are people to cotact ad whe, plus what you ll eed to ask of each party. Withi three days Withi 10 days Withi the first moth Decedet s attorey/estate attorey: Discuss potetial help with maagemet of all pertiet estate issues. Decedet s doctor: Obtai ay pertiet medical records. Fueral home: Request at least 10 copies of the death certificate. Baks ad fiacial istitutios: Determie where the decedet had holdigs, accouts, or safe deposit boxes; start aalyzig the postmortem optios for ay qualified plas, icludig IRAs, ad updatig beeficiaries. Accoutat, fiacial, or tax advisor: Discuss persoal icome tax returs ad schedule for estate tax filigs; otify IRS of executor or trustee appoitmet. Life isurace compaies: Iitiate claims processes. Social Security, Veteras Affairs: Ask about applicable pesios ad survivor beefits from these or other agecies from which the decedet received beefits. Utilities ad creditors: Chage ame o accouts. Mortgage leder ad estate agecies: Obtai decedet s debt iformatio, titlig, or property, ad esure appropriate isurace is i place. 19

11 2 UNDERSTAND YOUR RESPONSIBILITIES Digital Assets I this day ad age, you may wat to discuss the decedet s digital assets with the family. Digital assets ca iclude etwork accouts; accouts; airlie, hotel, or credit card reward programs; olie photography or video accouts; ad websites or blogs. Would the family prefer, for example, to maitai social media accouts for a certai amout of time? The decedet s accout could be a helpful place to iform distat frieds ad relatives of the death ad fueral arragemets. Alteratively, would the family prefer to remove the decedet s digital footprit as soo as possible to preserve privacy? Whe dealig with digital assets, be sure you re ot violatig licesig agreemets ad terms-of-use policies agreed to by the decedet, i additio to federal or state-specific laws. 21

12 2 UNDERSTAND YOUR RESPONSIBILITIES Protectig Yourself From Persoal Liability Oe of the fastest-growig legal practice areas is probate ad trust litigatio. Poor decisios made by a iexperieced executor or trustee ca lead to protracted litigatio, family ifightig, uecessary expeses, distributios that are made cotrary to the decedet s wishes, ad i the worst-case sceario a family irrevocably divided. As a executor or trustee, you could potetially face persoal liability if the beeficiaries are ot happy with the estate settlemet. Here are three ways to help protect yourself agaist possible litigatio: 1 Uderstad your fiduciary duty Commuicatig With Beeficiaries A executor or trustee should be sesitive to the survivig family s situatio. This may iclude coferrig with beeficiaries as early as possible to discuss provisios of the estate ad with other parties who would eed to be otified of the decedet s passig. You should also determie family members immediate cash eeds related to fueral ad other expeses, if appropriate. You do t have to share every detail of the estate process, but you must provide beeficiaries with all legally required iformatio. Also, be clear with beeficiaries about the expected amout ad timig of distributios. 2 Avoid coflicts of iterest 3 Seek out professioal help if ecessary 23

13 3 CHAPTER THREE The Role of a Executor 25

14 3 THE ROLE OF AN EXECUTOR A family member, great fried, or busiess parter amed you as executor (i some states referred to as a persoal represetative). Whe he or she first asked you to take o this resposibility, you willigly agreed. But ow it s time to step ito the job. What exactly are your resposibilities? Trasferrig Probate Assets As executor, you are resposible for marshalig ad trasferrig assets the decedet owed i his or her ow ame (also kow as probate assets ) to either: Beeficiaries amed i the decedet s will. The decedet s heirs, as determied by state law, if the decedet did t have a will. The decedet s creditors. Hadlig No-Probate Assets Some assets fall outside the defiitio of probate assets, but you may still eed to cosider them whe settlig a estate ad preparig tax returs. These iclude: Assets held i joit ames: These will ormally pass directly to survivig joit ower(s). Assets held i accouts with beeficiary desigatios: These may iclude life isurace, qualified retiremet accouts, trasfer-o-death accouts, ad pay-o-death accouts, amog others. Trust assets: Assets titled to a trust at death pass accordig to trust documet terms. Maagig Estate Property The decedet s persoal residece, vacatio home, or other properties may be icluded i the estate. As executor, you re resposible for keepig them safe, witerized, ad well maitaied. Evetually, you ll be i charge of distributig them to beeficiaries or sellig them. The decedet s estate documets may idicate how they would like property hadled after their death. I the meatime, you should determie whether appropriate isurace is i place, who has keys to the properties, ad whether you eed to chage the properties locks. Util the properties are passed to beeficiaries or sold, you ll eed to use the estate bak accout to pay utility bills, homeowers isurace, ad taxes. You will also eed to keep the assets i good repair or hire someoe to help you do so. 27

15 3 THE ROLE OF AN EXECUTOR Maagig Busiess Iterests If the decedet was actively ivolved i ay busiesses, those etities may eed to be reviewed as part of the estate-settlemet process. You may eed the help of a attorey ad tax professioal. A family-owed busiess, partership, or other kid of busiess iterest ca really complicate a estate. It s usually uwise to hadle busiess assets o your ow as the executor, especially whe a busiess parter or co-ower may be ivolved. Carig for Childre Are miors ivolved? If so, you ll eed to work with their amed guardia o how ad whe to distribute estate assets. The will may iclude specific istructios about how you are to disburse moey to a guardia for the beefit of miors. The will may eve have established a trust upo death for the childre s beefit. If special-eeds childre are ivolved ad a Special Needs Trust has ot already bee established, cosult a Special Needs Trust attorey who ca help you determie whether such a trust is advisable to preserve eligibility for curret or future public beefits. Other Tasks Idetify, marshal, ad preserve persoal property. Arrage for the appraisal of probate ad o-probate assets for tax returs, estate-tax apportiomet, ad creditor abatemet. Review ad pay creditor claims. Segregate estate property from other idividuals property. Preserve ad maitai the value of estate assets by acquirig appropriate isurace ad makig prudet ivestmet decisios. It may be helpful to work with a estate attorey throughout the estate settlemet process. A attorey ca help iterpret certai provisios of the will, provide guidace o your fiduciary duties, draft required probate documets, prepare a property ivetory, idetify required tax compliace issues, ad esure proper distributio of assets. 29

16 THE ROLE OF AN EXECUTOR 3 A Executor s Startig Checklist q Obtai at least 10 death certificates. q Cotact attorey to discuss qualifyig with the court to be appoited executor. q Apply for a Tax Idetificatio Number (TIN) for the estate. q Ope a accout i the estate s ame. q Cosider immediate sources of cash flow eeded to cover livig expeses for a survivig spouse or depedets, ad ogoig household expeses. q Cotact the police to have them periodically check the house if it is ow vacat. q Cotact a tax professioal to discuss federal ad state icome tax returs ad potetial gift ad estate tax filigs. q Cotact other fiacial istitutios for iformatio o holdigs, if ay exist. q Cotact baks to fid accouts ad safe deposit boxes. q Cotact life isurace compaies to iitiate claims process. q Cotact Social Security ad other agecies from which the decedet received beefits, such as Veteras Affairs, to stop paymets ad ask about applicable survivor beefits. q Cotact agecy providig pesio services to discuss survivig spouse beefits. q Obtai IRA beeficiary iformatio ad discuss miimum distributio ad IRA rollover optios for the survivig spouse ad beeficiaries with a tax professioal. q Obtai iformatio o how real estate is titled ad cofirm appropriate isurace is i place. 31

17 3 THE ROLE OF AN EXECUTOR Estate Settlemet Timelie There is o oe-size-fits-all schedule for probatig a will. However, after you complete iitial tasks, these are geerally the resposibilities you ll eed to hadle before the estate is fialized. Moths 3 6 Appraise ad value all estate assets as of date of death (also alterative valuatio dates if advatageous for estate tax returs). Establish ad documet tax basis for all assets. Review prior icome ad gift tax returs filed by the decedet. File ivetory of assets with the court.* Pay validated creditor claims. Raise cash for paymet of admiistrative expeses, estate taxes, ad specific bequests. Distribute tagible persoal property. Moths 7 8 Amed ivetory of estate assets ad debts/expeses if ecessary. Examie the availability ad appropriateess of makig available postmortem tax electios ad disclaimers. Prepare/review drafts of federal ad state death tax returs. Pay specific bequests, if applicable ad prudet at this time. Moth 9 ad beyod Create reserve fud for taxes ad expeses. File decedet s persoal icome tax returs ad pay tax. File fiduciary icome tax returs for estate/trust ad pay tax. File federal ad state death tax returs ad pay tax. Obtai death tax ad icome tax clearaces. Obtai fial approval of court.* Make fial distributio of remaiig assets ad obtai receipts, as appropriate. Establish commuicatio pla that keeps beeficiaries well iformed throughout the process. *If required by the court 33

18 4 CHAPTER FOUR The Role of a Trustee 35

19 4 THE ROLE OF A TRUSTEE A trustee is the perso who admiisters ay assets that were placed i a trust. While the fiduciary duties for maagig these assets are quite similar to those of a executor settlig a will, assets i a trust do ot have to go through probate. Depedig o your comfort level with the process ad your time availability, you may wish to fid a estate attorey to help guide you o these importat compoets of admiisterig a trust. Maagig Trust Property A trust may iclude the decedet s persoal residece or multiple properties. You ll eed to check trust documets for specific directios, esure that appropriate isurace is i place, determie who has property keys, ad chage the locks whe appropriate. Util you ad your attorey have determied whether the property or properties will be distributed to beeficiaries or sold, you will eed to maitai them just as you would your ow home. This icludes payig utility bills, homeowers isurace, ad real estate taxes, alog with geeral maiteace ad upkeep. Maagig Busiess Iterests The trust s iterest i closely held busiesses, parterships, or other busiess iterests may be subject to co-ower or partership agreemets. Work with your estate attorey ad tax advisor to determie the most appropriate courses of actio. Carig for Childre If the decedet is survived by a mior, work with their amed guardia to determie their eeds ad distribute trust assets. Trust documets will dictate how, whe, ad uder what circumstaces trust moey will be released to a guardia for a mior s care. If ay of the childre are livig with special eeds ad the decedet did ot establish a Special Needs Trust, cosult a Special Needs Trust attorey who ca help you determie whether the establishmet of such a trust is advisable to preserve eligibility for curret or future public beefits. Special Needs Trust What-If Sceario Uder the terms of the decedet s trust, at her death, half of the trust is to be distributed outright to her daughter. Soo after the decedet s death, the trustee leared that the daughter is livig with special eeds ad could possibly be receivig SSI ad Medicaid, which are meas-tested public beefits. Strategy Upo learig about this potetial issue, the trustee should schedule a call with the daughter or her guardia ad a Special Needs Trust advisor. The trustee should the gather detailed iformatio about the daughter s situatio ad the review the terms of the trust with a attorey specializig i Special Needs Trusts. After reviewig the trust with cousel ad the Special Needs Trust advisor, the trustee may choose to trasfer the fuds to a Special Needs Trust. 37

20 4 THE ROLE OF A TRUSTEE Workig With a Corporate Trustee Idividuals may ame a corporate as well as a idividual trustee. I these cases, the corporate represetative ad the idividual trustee will work together to meet the best iterests of the beeficiaries. Make sure you clearly uderstad both your ad the trustee s roles ad resposibilities regardig admiistrative tasks. Workig With a Executor If you do ot also serve as the executor of the will, the perso servig i that capacity will have separate ad specific duties ad the two of you should collaborate closely. The most commo tasks requirig close collaboratio iclude postmortem plaig for debts, expeses, taxes, ad the ultimate distributio of the estate ad trust. The goverig documets or goverig law provide directio for both. Without collaboratio, additioal risk ad liability ca be icurred at the detrimet of the beeficiaries. The Roles of a Executor ad a Trustee These two roles have subtle differeces. Depedig o how a estate was structured, there may be a executor ad a trustee, who may or may ot be the same perso. Executor Starts role based o state-specific probate requiremets, ormally court-appoited Reviews provisios of the will, locates heirs, ad discusses prelimiary probate steps with attorey upo decedet s death Must safeguard ad marshal the probate assets i the estate Maages process of probate court oversight, which may iclude court permissio to sell ad distribute real assets For court ivetory or tax purposes, obtais oprobate asset iformatio, such as assets i trust that are joit/payable o death, ad assets with beeficiary desigatios, like life isurace Serves as a executor for life (a probate case may be reopeed eve after details have bee fialized) Typically resposible for disbursig assets to beeficiaries Similarities Resposible for payig taxes Trustee Starts role whe appoitmet is accepted i writig, which may be whe the origial trustee passes away or resigs Must idetify, safeguard, ad marshal assets titled i the trust s ame or payable to the trust (isurace, retiremet beefits, estate assets) Admiisters the trust ad is resposible to beeficiaries of the trust, ormally without court oversight Moitors assets for quality ad preservatio, recogizig ear-term distributio requiremets. For ogoig trusts, moitors ad maages for the beefit of the beeficiaries eeds May be required, per documet terms, to keep the trust operatioal for the lifetime of the survivig spouse or oe or more beeficiaries Must remai faithful to decedet s wishes 30% Percetage of affluet households that establish a persoal trust 40% Average percetage of affluet ivestors asset mix made up of real estate ad privately held busiess iterests 71% Percetage of affluet ivestors who say they ve acted to esure a orderly wealth trasfer 39 Sources: Moey i Motio, SpectremGroup, 2016; 2015 Wells Fargo Affluet Ivestor Survey

21 THE ROLE OF A TRUSTEE 4 A Trustee s Startig Checklist q Notify trust beeficiaries ad documet your acceptace of your role as trustee. q Review the idividual s fiacial statemets ad prior year s tax returs to idetify assets titled i the trust s ame. q Establish a ew bak accout or have the existig bak accout reamed to idetify you as trustee. q Idetify a fiacial advisor who ca coduct a portfolio review of all ivestmet assets i the trust. q Cosider cosolidatig multiple trust accouts for ease of maagemet. q Determie a appropriate amout of easily accessible moey to cover ogoig trust-related fees, taxes, ad expeses. q Create a list of key cotacts at fiacial ad other istitutios. Provide each with: q Copies of the death certificate ad your trustee acceptace form q The trust s Tax Idetificatio Number (TIN), which you ca request from the Iteral Reveue Service q Arrage asset appraisals for estate ad icome tax purposes. q Work with the estate attorey ad/or tax advisor to file required retur(s) ad pay taxes due (coordiate with the executor of the estate if oe is appoited). 41

22 4 THE ROLE OF A TRUSTEE Moths 3 6 Moths 7 8 Moth 9 ad beyod Trust Settlemet Timelie Appraise ad value all trust assets as of date of death (also alterate valuatio dates if advatageous for estate tax returs). Establish ad documet tax cost basis for all assets. Pay validated creditor claims (if ot beig doe by a executor). Geerate cash for paymet of estate taxes ad specific bequests. Distribute tagible persoal property. Establish commuicatio pla that keeps beeficiaries well iformed throughout the process. Fialize ivetory of trust assets ad debts/expeses. Examie the availability ad appropriateess of makig postmortem tax electios ad disclaimers available. Prepare/review drafts of federal ad state estate tax returs. Pay specific bequests, if applicable ad prudet at this time. Create a reserve fud for taxes ad expeses. File estate ad icome tax returs ad pay tax (if ot beig doe by a executor). File fiduciary icome tax returs for trust ad pay tax. File federal ad state death tax returs ad pay tax (if ot beig doe by a executor). Obtai death tax ad icome tax clearaces (if ot beig doe by a executor). Make fial distributio of remaiig assets ad obtai receipts, as appropriate. There is o oe-size-fits-all schedule for admiisterig a trust. However, after you complete iitial postmortem tasks, these are geerally the resposibilities you ll hadle before the trust admiistratio is fialized. 43

23 5 CHAPTER FIVE Death ad Taxes 45

24 5 DEATH AND TAXES Whether a estate is subject to estate taxes or ot, icome tax returs will have to be filed for the decedet ad the decedet s estate ad/or trust. Be careful: Completig post-death tax returs ca be complicated. Preparig & Filig Estate Taxes The amout a estate pays i taxes ca impact what s left for beeficiaries. Approach this job carefully ad get professioal help whe you eed it. As the executor or trustee, you eed to take proper care to file the ecessary tax returs ad aalyze ad make advatageous post-death tax electios. This task is critically importat. As such, it s ever wise to distribute assets to beeficiaries util all estate-related taxes have bee determied. Because taxes are so importat, oe of the iitial tasks of the executor or trustee is to gather the ecessary iformatio ad documets ad coordiate preparatio of the required tax returs. Durig this time, it s wise to work closely with a attorey or tax professioal. These professioals ca develop a pla that aalyzes tax-filig requiremets ad available tax electios to reduce the decedet s ad the estate s overall tax bill. 47

25 DEATH AND TAXES 5 Tax-Electio Optios You ll wat to pay attetio to choosig the most advatageous tax year, allocatig expeses o various returs, choosig the timig for chargig expeses, ad selectig the best way to collect or distribute retiremet accouts. Whe Wells Fargo is amed as your aget, our Estate Services team ca prepare a detailed tax pla that ca help you make the most prudet fiacial choices. Oe of the most importat tasks i settlig a estate is filig all the correct returs with federal ad local govermets. This process ca be complicated, so it may make sese to work with a attorey or tax professioal to idetify all the tax documets you will eed to file, particularly if you do t have expertise i this area. 49

26 DEATH AND TAXES 5 Icome Tax Plaig Issue What-If Sceario The decedet was survived by a spouse, ad his trust documet created a typical A/B Trust (the A Trust was the Marital Deductio Trust, ad the B Trust was the Bypass Trust that allows both spouses tax exemptios to pass estate tax free to their childre). Give the high estate exemptio tax equivalet ad portability, the trustee kew that she had to cosider whether the terms of the Marital ad Bypass Trusts were beeficial to the survivig spouse ad the couple s heirs. Strategy From a tax-plaig perspective, assumig the survivig spouse has a small estate, it may be prudet to have the residue of the decedet s trust paid to the Marital Trust. I that case, the assets i the Marital Trust would be icluded i the survivig spouse s estate ad receive a full step-up i cost basis upo her death. This should have o egative impact from a estate tax stadpoit give the value of the couple s estates ad the availability of the curret exemptio equivalet for each. Other Tax Requiremets You will also eed to review previously filed gift ad icome tax returs. You may eed to file ay pedig or deliquet returs with the appropriate taxig authority. Additioally, you may eed to be ready to participate i estate or icome tax audits o behalf of the estate/trust or decedet. Required tax filigs Decedet s federal ad state icome tax returs Estate/trust fiduciary icome tax returs Federal ad state death tax returs Form 8971: Iformatio Regardig Beeficiaries Acquirig Property From a Decedet (if applicable) Other possible tax exposure Property taxes Past-due icome tax Gift taxes Foreig accout disclosures After Taxes Are Determied Oce you ve set a pla for taxes, you ll be able to pla how ad over what time frame to distribute bequests ad residual assets to the beeficiaries. Your estate attorey should be able to help you with ext steps, which may be to determie the statutory rights of a survivig spouse ad childre, as well as how to approach importat tasks such as: Distributig cash, securities, ad other assets to beeficiaries i accordace with the provisios of the will or trust Fudig cotiuig trusts Executig appropriate deeds ad assetregistratio documets Deliverig specific bequests of property ad cash 51

27 6 CHAPTER SIX Maagig Family Dyamics 53

28 6 MANAGING FAMILY DYNAMICS Sometimes a will or trust uearths questios or disputes amog family members. Your job as executor or trustee is to remai fair ad impartial. It s also helpful to keep beeficiaries well iformed throughout the etire estate-settlemet process particularly if you thik coflicts are brewig. A experieced attorey ca help iterpret uclear will or trust provisios ad guide you through the maze of state ad federal statutory requiremets. The attorey who drafted the estate pla may have the clearest uderstadig of the decedet s itetios ad be i the best positio to provide explaatios to the family. Family Dyamics: What Could Go Wrog? Eve with the best possible scearios, it s possible that disputes ad coflicts may pop up with the estate settlemet process. Here are some commo issues you may face servig as a executor or trustee: Family members cotest the will/trust Estate pla fails to address uforesee circumstaces Disputes about owership of assets Curret/former spouses cotest the will/trust Questios aroud the decedet s metal capacity I cases like these, it may be helpful to seek a attorey for advice. 55

29 MANAGING FAMILY DYNAMICS 6 Court Accoutigs Your attorey or a tax professioal ca help prepare ay required court accoutigs, which are typically very detailed ad offer a complete accoutig of: Estate assets ad their value The value of ay assets sold or distributed Cash receipts Cash distributios to beeficiaries ad creditors Professioal ad admiistrative expeses paid Havig these completed correctly may reduce the chace of family members questioig your estate work. Statemets to Beeficiaries Eve if you re ot required to do so, givig beeficiaries detailed accout statemets is a smart way to keep them iformed ad miimize challegig questios. If Wells Fargo Bak is amed as your aget, our Estate Services team ca provide detailed statemets to beeficiaries. Detailed accout statemets typically iclude: Listigs of assets received (securities, real property, tagible property, etc.) Date-of-death values ad curret market values of all assets Lists of distributed assets (icludig recipiets ames) Ivetory of assets sold (icludig the gais or losses realized o sales) Cash receipts (icludig eared icome) Cash distributios for expese ad debt paymet (icludig recipiets ames) Fees paid to the executor/trustee, attorey, tax professioal, appraisers, ad other professioals 57

30 6 MANAGING FAMILY DYNAMICS Whe the Court Ca Help If family coflicts ru deep, they ca derail the estate-settlemet process. Whe that happes, filig a court actio may be the wisest choice. A family member might cotest the will or trust. The estate pla may fail to address uforesee circumstaces. Multiple people may dispute owership of a particular asset. I some cases, beeficiaries may questio the decedet s metal capacity whe he or she prepared the will or estate pla. I circumstaces such as these, it s wise to take a attorey s advice. You may also eed to petitio the court for relief. Why May People Avoid Probate May families seek to avoid probate because it makes the estate settlemet process public whe they would rather keep it private. Accordigly, revocable trusts have become a very popular substitute for wills, sice they allow families to distribute assets without probate proceedigs. Ad Why Sometimes the Court Ca Be Helpful Eve whe settlig a revocable trust, appearig i frot of the probate court (or the court with jurisdictio) ca be beeficial. Probate courts exist to esure the proper collectio ad distributio of a decedet s assets ad ca brig order to post-death situatios that might otherwise spiral out of cotrol. A court order ca give a trustee the authority to settle disputes ad begi repairig family relatioships. Note that each situatio is differet, ad, as such, the executor may wat to seek appropriate cousel as eeded. Whe Beeficiaries Challege Prudet Recommedatios What-If Sceario The decedet left a estate with a uderperformig busiess that was operatig at a mothly loss. The executor decided that the most prudet course of actio would be to sell the failig busiess ad preserve the estate s remaiig assets. The childre objected because they had a setimetal attachmet to the busiess ad it was the oly employmet they had ever had. Strategy To protect himself from criticism for sellig the busiess agaist the wishes of the childre ad from cotiuig to hold a uderperformig asset, the executor filed a petitio with the court askig for guidace. After hearig testimoy from all sides, the court, actig as a idepedet arbiter ad fact fider, ordered that the busiess be distributed to the childre ad that other productive assets cotiue to be held by the executor. By petitioig the court, the executor achieved the desired results both of satisfyig the beeficiaries setimetal wishes ad protectig himself from future liability ad secod-guessig. 59

31 7 CHAPTER SEVEN Commo Estate Settlemet Challeges 61

32 COMMON ESTATE SETTLEMENT CHALLENGES 7 The more complex a estate, the more likely it is that the executor ad/or trustee could ru ito uusual settlemet issues. Everythig from the appraisal ad sale of a valuable collectio to a workig farm that eeds a trasitio pla may slow dow the estate-closure process. Whe a estate is complicated, or icludes liquidity issues, uusual assets, or a dispute amog beeficiaries or creditors, the time required to settle the estate ca stretch several years or loger. There is o doubt that fulfillig your duties as a executor or trustee ca be time-cosumig. If this is your first time settlig a estate, you may quickly become overwhelmed by the required duties ad associated liabilities. For istace, you may ecouter a situatio where the decedet s spouse has o cash to cover immediate expeses because all the fiacial accouts are froze. Or you may lear that the decedet has a adult child who was completely fiacially depedet o him or her ad may ow be i fiacial distress. Previous Experiece Not Required Thakfully, you do t have to be a expert i probate law, fiduciary law, taxatio, or asset maagemet to be a executor or trustee. However, i may istaces, you may beefit from professioal advice. A attorey, for istace, ca help you determie if iterim distributios to beeficiaries to help alleviate fiacial difficulties would be advisable ad legal. Eve executors with legal or fiacial expertise may eed help maagig the settlemet process if the estate or trust is particularly complex or icludes uique assets. Whe to Call i Professioals These uique assets brig additioal complicatios ad may require specialized kowledge: A operatig busiess or professioal practice Ivestmet maagemet accouts Commercial real estate or retal properties A farm, livestock, or crops Timber or other alterative ivestmets Oil, gas, ad mieral rights Valuable collectios (cars, art, jewelry, collectible firearms, etc.) Multiple properties i differet states or coutries 63

33 Your Estate Settlemet Team As executor or trustee, you may beefit from the help of professioals who have deep experiece i estate settlemet issues. You may wat to cosider addig oe or more of the followig professioals to your team: Fiacial Advisor Reviews ad iterprets fiacial statemets Orgaizes ad maitais records by providig accout statemets Coducts portfolio review of ivestmet assets Appraiser Prepares asset (persoal, busiess, ad real estate) appraisals for estate ad icome tax purposes Property Maager (if applicable) Esures property is secure Keeps real estate assets i good repair Hadles collectio of rets ad paymet of expeses Negotiates leases ad cotracts Real Estate Broker (if applicable) Drafts real estate documetatio if sellig Idetifies repair eeds Coordiates ad arrages ispectios/reviews Recommeds buyers if assets eed to be sold Estate Attorey Advises o overall strategy Iterprets will/trust directives Drafts legal documets Represets you i probate court Serves as a buffer betwee family members Cosults o the paymet of debts ad expeses Represets you i state or IRS tax audit or other estate litigatio Tax Professioal Helps gather ecessary tax iformatio Reviews fiacial statemets ad prior year s tax returs Idetifies ad prepares required tax documets Estimates ad advises o cash eeded for tax paymets Cousels o busiess-related tax implicatios Provides guidace i the evet of state or IRS tax audit Estate Advisory Specialist (assiged if Wells Fargo is egaged as executor, trustee, or aget for executor or trustee) Negotiates fee agreemets with ad coordiates activities of all professioals Reviews will ad trust provisios with the family Assists with court admiistratio services: Probates the will, provides otice to creditors, ad prepares ivetory ad accoutigs Marshals ad safeguards assets ad arrages for asset valuatios Establishes a accout to hold cash ad securities Maages tax submissio process Arrages paymet of admiistratio expeses ad creditors Resolves disputes Keeps beeficiaries iformed via mothly accout statemets ad coordiated commuicatio pla 65

34 COMMON ESTATE SETTLEMENT CHALLENGES 7 Call o Wells Fargo & Compay For help with savigs, checkig, ad other bak accouts... Call Wells Fargo at (24 hours a day, 7 days a week). Bakig professioals ca tell you what steps are ecessary to obtai accout iformatio. If you have questios about a brokerage relatioship... A recet accout statemet from Wells Fargo Advisors may have the ame ad umber of the decedet s fiacial advisor, or you ca call Ivestmet professioals will make sure you have a complete ivetory of ivestmet accouts ad explai your optios for liquidatig them or updatig owership iformatio. Where Ca I Get Help? Some estates are clear ad straightforward. Others iclude extesive ivestmet portfolios, property, coflict with beeficiaries, ad more. Executors ad trustees do t have to go it aloe. Professioals ca help you get the job doe. Hirig experieced professioals may provide you with a critical safeguard. As a fiduciary, you must hadle complex, time-cosumig tasks at a sesitive ad emotioal time. Errors or delays could result i eedless litigatio costs, taxes, expeses, ad pealties. I the previous chapters, we ve offered you some useful tips to help you with your duties as you work through the estate settlemet process, but this iformatio is ot exhaustive. If you would like to lear more, we have icluded a list of useful Wells Fargo & Compay cotact iformatio. If you eed assistace settlig the estate... Wells Fargo Estate Services: For cliet relatioships valued at $1 millio or more, Wells Fargo ca hadle every aspect of the estate settlemet process. Services ca iclude estate plaig documet review; probate ad trust admiistratio; asset maagemet; closely held busiess valuatios ad maagemet; oil, gas, ad mieral rights maagemet; real estate maagemet; ad postdeath tax plaig ad preparatio. Cotact the Estate Settlemet Services Liaiso Team at or estateservices@wellsfargo.com. 67

35 Disclosures Wells Fargo Private Bak ad Wells Fargo Wealth Maagemet provide products ad services through Wells Fargo Bak, N.A. ad its various affiliates ad subsidiaries. Wells Fargo Bak, N.A., is a bak affiliate of Wells Fargo & Compay. Wells Fargo affiliates may be paid a referral fee i relatio to cliets referred to Wells Fargo Bak, N.A. Wells Fargo Bak, N.A. (the Bak ) offers various advisory ad fiduciary products ad services. Fiacial Advisors of Wells Fargo Advisors may refer cliets to the bak for a ogoig or oe-time fee. The role of the Fiacial Advisor with respect to bak products ad services is limited to referral ad relatioship maagemet services. The Bak is resposible for the day-to-day maagemet of o-brokerage accouts ad for providig ivestmet advice, ivestmet maagemet services ad wealth maagemet services to cliets. The Fiacial Advisor does ot provide ivestmet advice or brokerage services to Bak accouts, but does offer, as applicable, brokerage services ad ivestmet advice to brokerage accouts held at Wells Fargo Advisors. The views, opiios ad portfolios may differ from our broker-dealer affiliates. Wells Fargo Advisors is a trade ame used by Wells Fargo Clearig Services, LLC, ad Wells Fargo Advisors Fiacial Network, LLC, Members SIPC, separate registered broker-dealers ad o-bak affiliates of Wells Fargo & Compay. This report is ot a offer to buy or sell, or a solicitatio of a offer to buy or sell the strategies metioed. The strategies discussed or recommeded i the presetatio may be usuitable for some cliets depedig o their specific objectives ad fiacial positio. This iformatio is provided for educatio ad illustratio purposes oly. Wells Fargo & Compay ad its affiliates do ot provide legal advice. Well Fargo Advisors is ot a tax or legal advisor. Please cosult your tax or legal advisors before takig ay actio that may have tax or legal cosequeces ad to determie how this iformatio may apply to your ow situatio. Whether ay plaed tax result is realized by you depeds o the specific facts of your ow situatio at the time your taxes are prepared. This iformatio is desiged to provide geeral iformatio regardig the estate settlemet process, but it is ot exhaustive. We ecourage you to work closely with your tax advisor ad estate plaig attorey durig this difficult time. Estate plas eed to be prepared ad reviewed by a attorey who specializes i estate plaig ad is licesed to practice estate law i your state Wells Fargo Bak, N.A. All rights reserved. CAR