How to Liquidate Assets after a Loved One’s Death

February 2, 2024

The loss of a loved one is a difficult time, often compounded by the necessity of addressing estate settlement and the liquidation of assets. In this guide, we’ll explore the key steps involved in liquidating assets after death, focusing on estate settlement processes and related legal considerations.

Understanding the Role of the Executor in Estate Settlement

The estate executor, appointed either by a will or a court, plays a pivotal role in the estate settlement process. They’re responsible for gathering and appraising the deceased’s assets, paying debts and taxes and distributing the remaining assets to the beneficiaries.

Executor’s Responsibilities:

Inventory assets.
Appraise the estate’s value.
Pay off debts and taxes.
Distribute assets to beneficiaries.

Probate: What Does It Entail?

Probate is the legal process through which a deceased person’s will is validated and their estate is administered. This process ensures that debts are paid, and assets are distributed according to the will or state law.

Key Aspects of Probate:

Validating the will
Settling debts
Distributing assets as per the will or law

How to Liquidate Assets: A Step-by-Step Guide

Liquidating assets involves converting the decedent’s properties into cash. This could include selling real estate, stocks, or personal items.

Steps for Liquidation:

Appraise Asset Values:

The first step in liquidating assets involves accurately appraising their value. This process is crucial to ensure that the assets are sold for their true worth and to prevent underselling.
Appraisals should be conducted by qualified professionals specializing in the asset type being appraised. For instance, real estate should be appraised by a licensed real estate appraiser, while valuables like jewelry, art, or antiques may require an appraiser with expertise in those specific areas.
Accurate appraisals not only provide a clear idea of the estate’s total value, which is necessary for both estate settlement and tax purposes, but also guide the pricing strategy when these assets are put up for sale.

Find Buyers or Auctions for Sale:

Once the assets have been appraised, the next step is to find the most suitable method to sell them, which could involve direct sales to buyers or utilizing auctions.
For unique or high-value items like artwork, jewelry, or collectibles, auctions can effectively reach specialized buyers willing to pay a premium. Auction houses or online auction platforms can be used, depending on the nature of the asset.
For more common assets like real estate or vehicles, finding buyers directly through real estate agents, online marketplaces, or advertising in relevant media might be more efficient.
The choice between direct sale and auction often depends on the asset type, the time available for sale and the desired balance between obtaining the best price and selling the asset quickly.

Complete the Sales and Gather Proceeds:

Completing the sales involves several steps, from negotiating terms to finalizing transactions and transferring ownership. This process must be handled carefully to ensure legal compliance and the protection of all parties’ interests.
It is essential to have clear, written agreements detailing the terms of the sale, especially in private sales. These agreements should outline payment terms, transfer of ownership and any warranties or guarantees.
Once the sale is complete, the proceeds must be collected and managed properly. This might involve depositing funds into estate accounts and keeping detailed records for estate settlement purposes.
The executor or estate administrator is responsible for ensuring that the proceeds from these sales are used according to the estate’s requirements, such as paying off debts, covering estate expenses, or being distributed to beneficiaries as per the will or state laws.

Each step requires careful consideration and planning to ensure that the estate’s assets are liquidated efficiently and for their maximum value, contributing to a smoother estate settlement process.

The Importance of Beneficiary Designations

Beneficiary designations on accounts like retirement plans and life insurance policies supersede wills. It’s crucial to ensure that these designations are up to date.

Benefits of Designations:

Speed up asset distribution
Avoid probate for certain assets.

Dealing with Debt and Creditors

The executor must settle any outstanding debts of the deceased before distributing assets. Creditors typically have a set period to make claims against the estate.

Managing Debts:

Identify all outstanding debts
Notify creditors of the death
Pay debts from estate funds.

Real Property: Special Considerations in Liquidation

Selling real estate involves additional steps, like property appraisal, preparation for sale and understanding market conditions.

Real Estate Liquidation:

Appraise property value
Prepare property for sale
Sell through a realtor or auction.

Transfer on Death Accounts and Joint Ownership

Assets in accounts designated as “transfer on death” or jointly owned can bypass probate and pass directly to the designated beneficiary or surviving owner.

Advantages of TOD and Joint Accounts:

Avoid probate
Immediate transfer of assets.

Tax Implications in Estate Settlement

The executor must consider estate, inheritance and income taxes due from the estate or the beneficiaries.

Tax Considerations:

File estate tax returns. if necessary.
Handle inheritance tax for beneficiaries.
Manage income tax obligations.

Challenges in Estates Without a Will

If the person dies without a will (intestate), the probate court will appoint an administrator to distribute assets according to state laws.

Intestate Estate Distribution:

Follow state law for asset distribution
Court-appointed administrator’s role.

Estate Planning: Preventing Future Complications

A well-structured estate plan, including a will, trust and beneficiary designations, can simplify the asset liquidation process.

Estate Planning Benefits:

Clear instructions for asset distribution
Potential to avoid or simplify probate
Reduced confusion and disputes among heirs.

Summary: Key Takeaways

Executor’s Role: Understand the responsibilities and legal obligations.
Probate Process: Be aware of the steps and legal requirements.
Liquidating Assets: Know how to appraise and sell different types of assets.
Dealing with Debt: Prioritize settling debts before distributing assets.
Beneficiary Designations: Ensure that they are current to avoid probate complications.
Tax Considerations: Be mindful of estate and inheritance tax implications.
Estate Planning: Encourage proactive planning to ease future estate settlement.

Navigating the intricate process of estate planning and settlement requires expertise and foresight. An estate planning attorney can provide invaluable assistance, helping you to understand and manage complex legal and financial aspects, such as will drafting, trust management, estate taxes and beneficiary designations. Hiring a seasoned estate planning attorney ensures that your estate is managed and distributed according to your wishes, potentially saving your beneficiaries time, money and legal hassles. An attorney can also help update your estate plan in response to life changes, ensuring that it always reflects your current wishes and circumstances. Don’t leave the future of your estate to chance. Book a consultation with an estate planning attorney today to secure peace of mind for you and your loved ones.

Do Heirs Pay Credit Card Debt?

January 15, 2024

When you consider the average credit card balance in 2023 was $6,365, chances are many Americans will leave an unpaid credit card balance if they die suddenly. A recent article from yahoo! finance asks and answers the question, “What happens to credit card debt when you die?”

Many people think death leads to debt forgiveness. However, this isn’t the case. Some forms of debt, like federal student loans, may be discharged if the borrower dies. However, this is the exception and not the rule.

Credit card debt doesn’t evaporate when the cardholder goes away. It generally must be paid by the estate, which means the amount of debt will reduce your loved one’s inheritance. In some cases, credit card debt might mean they don’t receive an inheritance at all.

Outstanding credit card debt is paid by your estate, which means your individual assets owned at the time of death, including real estate, bank accounts, or any other valuables acquired during your life.

Upon death, your will is submitted to the court for probate, the legal process of reviewing the transfer of assets. It ensures that all debts and taxes are paid before issuing the remaining assets to your designated heirs.

If you have a will, you likely have an executor—the person you named responsible for carrying out your wishes. They are responsible for settling any outstanding debts of the estate. If there’s no will, the court will appoint an administrator or a personal representative to manage the assets.

In most cases, your heirs won’t have to pay off your credit card debt with their own funds. However, you may be surprised to learn there are exceptions:

Married people living in community property states. In a community property state, the deceased spouse is responsible for repaying credit card debt incurred by their spouse. In 2023, those states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.
Credit cards with joint owners. If you had a joint credit card shared with a partner or relative, the surviving joint owner is responsible for the full outstanding balance. Only joint users are responsible for repaying credit card debt. If your partner was an authorized user and not an owner, they aren’t legally responsible for the debt.

Debt collectors may try to collect from family members, even though the family members are not responsible for paying credit card debts. The debt collector may not state or imply that the family member is personally responsible for the debt, unless they are the spouse in a community property state or a joint account owner.

If a debt collector claims you personally owe money, request a debt validation letter showing your legal responsibility for the debt. Otherwise, you have no legal obligation to pay for it yourself.

When someone dies, their estate is responsible for paying debts, including credit card debt. However, debt is repaid in a certain order. In general, unsecured debt like credit card balances are the lowest priority and paid last.

Some accounts are exempt from debt payment:

Money in a 401(k) or IRA with a designated beneficiary goes directly to the beneficiary and is exempt from any debt repayment.
Life insurance death benefits go directly to the named beneficiary and go directly to the beneficiaries.

If a loved one has died and they had credit cards, stop using any of their cards, even if you are an authorized user or joint owner. Review the deceased’s credit report to learn what accounts are open in their name and the balance on each account. Notify credit card issuers and alert credit bureaus—Equifax, Experian, and TransUnion. You may need to submit a written notification, a copy of the death certificate and proof of your being an authorized person to act on behalf of the estate.

Talk with an estate planning attorney to find out how your state’s laws treat the outstanding debt of a deceased person, as these laws vary by state.

Reference: yahoo! finance (Nov. 9, 2023) “What happens to credit card debt when you die?”

What Happens When the Second Parent Passes?

November 3, 2023

After doing everything right, including having an estate planning attorney prepare estate plans for her parents, a woman managed her mother’s affairs after her death in a matter of months. She expected the same when her father died, but some unexpected events occurred. A recent article from Business Insider, “I thought I was ready to wrap up my parents’ finances when they died. I was wrong,” provides some cautionary insights.

As their Power of Attorney, she managed her parents’ finances for several years before they passed, including placing most of their assets into irrevocable trusts. When her mother died, the trusts specified how the assets would be divided. A third went to the surviving spouse and a third to each of the two children. She was able to complete the transfer by phone with the investment company. She also filed her mother’s final tax returns and paid any outstanding bills.

She expected to have the same experience when her father died. However, she found that settling the second spouse’s affairs more complicated, even though she’d previously helped settle a second spouse’s estate for her father-in-law.

Her father’s estate was more straightforward: he lived in an assisted living facility with few possessions. Transferring the remaining trust assets to her sister and herself took one phone call and outstanding medical bills were paid in a matter of months. However, problems arose.

Her father’s bank account wasn’t in the trust, and neither she nor her sister could access his bank account without a will. He had a trust but no will, so her sister had to go to court and be legally declared his next of kin before she could close the bank account.

Filing the final tax return was also a challenge. While getting his traditional mail was always a challenge, she had been able to find any paper documents in the past. She could not log into his online accounts, since digital assets were never addressed.New Article

Getting a transcript from the IRS has been a long and complex process, and she’s hoping to get tax information in time to file by the tax extension deadline. As he died in 2023, she’ll have to do another set of tax returns next year.

Lessons learned:

Having a will and trust documents prepared by an estate planning attorney will make life easier. Designating an executor and/or trustee ahead of time can ease potential friction between siblings.

Gather all the paperwork. If parents are well enough and willing, gather financial paperwork, from tax records, bank and credit card information and login information to online accounts while they are still living.

Set realistic expectations. Don’t expect to complete all tasks quickly. It will take a few months and maybe longer to finalize taxes, sell property and deal with any outstanding legal or financial issues. Knowing it’s going to take time may make the process less frustrating.

Losing a parent is hard, and losing a second parent is often harder. Preparing for the estate planning aspects in advance can make a tough time a little easier.

Reference: Business Insider (Sep. 19, 2023) “I thought I was ready to wrap up my parents’ finances when they died. I was wrong.”

What Is the Deceased Spousal Unused Exclusion Portability Deadline?

October 23, 2023

Our tax system is designed to tax the aggregate of property transferred during an individual’s lifetime, commonly referred to as gifts, as well as the property transferred upon death. The total value of taxable gifts and assets transferred at the time of death must surpass a specific threshold before any gift or estate taxes are levied, as explained in the article “Portability of Deceased Spousal Unused Exclusion Extended” from The CPA Journal.

The current federal estate tax exclusion is $12,900,000 for 2023, and within a marriage, each spouse has a unified exclusion amount of $12,900,000. The Unified Exclusion Amount or Unified Transfer Tax Credit for 2023 is $5,113,800.

The portability election allows the estate of a deceased taxpayer whom a spouse survives to apply the decedent’s unused exemption amount to their own transfers during life (gifts) and at the time of their death.

By properly calculating and timely filing the Deceased Spousal Unused Exemption (DSUE), heirs can mitigate their tax liability on the inherited estate. Certain requirements must be met:

The deceased was a spouse.
The deceased died after December 31, 2010.
The deceased was a citizen or resident of the US at the time of their death.
The estate was not required to file an estate tax return based on the gross value of the estate and adjusted taxable gifts.

The portability provisions of the 2010 legislation were set to expire on January 1, 2013, but the American Taxpayer Relief Act of 2012 made the ability to elect portability election permanent. The Revenue Procedure 2022-32 became effective on July 8, 2022, and allowed certain taxpayers an extended amount of time—five years—to make a portability election regarding estate and gift taxes.

When first enacted, the executor of an estate was required to elect portability within nine months of the date of death or on the last day of the period covered by a granted extension. Note Revenue 2022-32 only applies to estates not required to file an estate tax return.

The IRS was swamped by estates requesting an extension to elect portability regarding the DSUE. A high percentage of these requests were determined to come from the estates of taxpayers who died within five years preceding the date of the requests for portability. As a result, the IRS extended the period to five years.

The estate executor must complete and properly prepare Form 706, the United States Estate and Generation-Skipping Transfer Tax Return, within five years of the taxpayer’s death. In addition, the executor of the estate must state at the top of Form 706 that the return is “Filed Pursuant to Revenue Procedure 2022-32 to Elect Portability under Section 201(c)(5)(a)” to fulfill portability requirements.

Executors who have not made the portability election must file Form 706 within five years of the decedent’s death. Speak with your estate planning attorney to be sure this is done in a timely manner. While the federal exemption for estate taxes is currently very high, the law will decrease by half on January 1, 2026, when more estates will need to pay federal estate taxes.

Reference: The CPA Journal (August 2023) “Portability of Deceased Spousal Unused Exclusion Extended”

Prepare Now for Coming Estate Tax Changes

June 30, 2023

The TCJA nearly doubled the lifetime estate and gift tax exemption from $5.6 million for individuals (and $11.18 million for married couples) to $11.18 million and $22.36 million for married couples), indexed for inflation after 2018. Right now, the exemption stands at $12.92 million per person and $22.84 million for couples, as reported in a recent article, “How To Prepare Clients Now For Looming Estate Tax Changes” from Financial Advisor.

All this changes on January 1, 2026, resulting in a roughly 50% reduction over the next few years. Individuals could see their federal estate tax exemption dipping to approximately $7 million, while couples could see a decrease to $14 million.

In anticipation of this drastic change, estate planning attorneys are reviewing plans now with clients to implement an appropriate course of action in less than three years. This is especially important for clients who might not have been impacted by estate tax laws in the past but who will be in 2026 because of a combination of the lowered amount and any growth in their assets.

Here are some strategies for preparing for the new lowered levels:

Review the complete estate plan with an estate planning attorney. Without a proper estate plan, it’s easy to lose sight of the value of all assets and may be entirely in the dark concerning estate tax liabilities. For instance, a boomer who hasn’t reviewed their estate plan in twenty years could see an enormous change in the size of their assets, possibly bringing them across the $7 million estate tax exemption threshold. Failing to address this could risk financial security in retirement and significantly impact their heirs.

Create a strategy with the information you have now. First, review your estate plan with an eye to moving assets out of the estate. You should then consider the overall goals and time horizons to determine the best way forward. There are several optimal strategies, including using annual gift tax exclusion, which as of 2023, is up to $17,000 per person.

The use of trusts is a well-known facet of estate planning. Which type of trust is used depends upon your specific situation. Trusts generate income and protect access to assets used for living expenses, reduce taxation on the estate, protect assets from creditors and keep a family’s financial assets and affairs private upon death.

Other strategies to consider:

Allocating assets to a 529 education plan, allows you to put money aside for the education of loved ones. It can be used for education from kindergarten to college, graduate coursework and more. There is also an option of accelerating gifting by giving up to five years of contributions in one year per individual.

Suppose you wish to pass assets to grandchildren, instead of gifting them during their lifetimes. Consider generation-skipping trusts, which allow you to create a separate fund for grandchildren under age 37.

There is no one-size-fits-all approach to estate planning. However, a discussion with your estate planning attorney will clarify your wishes and allow you to plan for the future.

Reference: Financial Advisor (May 8, 2023) “How To Prepare Clients Now For Looming Estate Tax Changes”

What Does the Role of Estate Executor Entail?

February 22, 2022

Being named as the executor of a will is an honor and an obligation. However, depending on the size of the estate and your relationship to the deceased, performing the duties of an executor can feel like a second job, says Kiplinger’s recent article entitled “What to Do When You’re the Executor.”

This can be a real challenge for adult children who are responsible for executing the estate of the last surviving parent. These executors are often required to distribute assets among several beneficiaries, sell the family home and look over all the family belongings. If the family is a bit dysfunctional, if it’s a big estate, or if their parents’ estate planning was poor (or nonexistent), it’s even more time-consuming. Let’s look at some basic steps most executors should follow:

Get a dozen copies of the death certificate and file the will. Copies of the death certificate are usually available from the funeral home. You must then file the will and death certificate with the county probate court. If probate is required, you must get a letter from the court, known as a letter of testamentary. This gives you legal authority over the estate.

Assemble your pro team. In most instances, you’ll need an experienced estate planning attorney to help you navigate the probate court. The attorney who helped the decedent draw up his or her will is a good choice, as he or she is most likely familiar with the estate.

Create an inventory of assets. If the deceased didn’t keep good records of bank and brokerage accounts, insurance policies, tax returns, and other documents, you may need to track down some of these accounts.

Protect personal property. If the estate includes a home, the executor is responsible for maintaining the property and paying the mortgage, taxes and insurance until it’s sold.

Set up a separate bank account. An executor will need to pay bills and make deposits on behalf of the estate, so set up a bank account in the name of the decedent’s estate. This will also provide you a record of transactions that will prove useful if anyone challenges your administration of the estate.

Pay the decedent’s debts. This is a crucial action. If the decedent’s unpaid bills and other debts aren’t paid before the estate is distributed to heirs, creditors could sue. The executor is also responsible for filing a state and federal tax return to pay any taxes owed (or claim a refund).

Communicate with the beneficiaries on a regular basis. Don’t leave the heirs in the dark.

Distribute the assets. Finally, you can distribute the assets after all debts are paid, which may first require court approval.

If this sounds like more than you can handle, you can decline to act as an executor. Sometimes that’s the right choice.

Reference: Kiplinger (Oct. 29, 2021) “What to Do When You’re the Executor”

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