Sorting out a Life
Heirs. Creditors. The IRS. How to handle them all if it's up to you to settle an estate.
By Kristin W. Davis
December 2003
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In a 30-year career as a bank trust-department officer -- and as executor of scores of estates -- Sherry McGillicuddy has seen enough disappearing assets that she frequently changes the locks on clients' houses when they die. In one case, she came across a woman's sons in a fistfight on the front lawn. "One of the wives had a crowbar trying to get in the front door, and the other was up on a ladder trying to get in a window," says McGillicuddy, who is executive vice-president of Frost National Bank, in Austin, Tex. Her job was to tell the snarling heirs that their mother had already carefully divided her possessions, marking each item with a sticker on which she'd written the name of one son or the other.
Unseemly as it may seem, it is a good idea to secure, or at least inventory, a deceased loved one's possessions early on, to avoid a free-for-all. "I had to stop them from carting off furniture," Holly Ocasio Rizzo, a San Clemente, Cal., resident, says of the "vulturous relatives" who showed up after her father's death in 2000.
And even if your family isn't the type to go to war over Grandma's silver, a death in the family sets off a long chain of sometimes delicate financial tasks that someone has to master, despite his or her grief. Where's the will? What bills have to be paid? What's the best way to distribute household possessions or sell stuff no one in the family wants? If you're the one who has to sort it all out, this guide is for you.
Where's the will?
You could be in for a hunt if it isn't tucked away in an obvious place, such as a desk drawer, file cabinet or home safe. Mary Sue Donohue, a trusts-and-estates lawyer in Boca Raton, Fla., says some people even store their will in the freezer, wrapped in foil to protect it from fire. If the will doesn't turn up at home, check the person's place of business or look for the name of a lawyer who might have a copy. To get into a deceased person's safe-deposit box at a bank, you generally need a key plus a copy of the death certificate.
Often, a will doesn't turn up at all. After Joanne Sammer's 72-year-old father died unexpectedly last year, she searched his desk in his house in Lakewood, N.J. She found "tons of old bills, canceled checks, check stubs and other financial flotsam," but no will. A funeral director steered her to a county Web site that spelled out how to handle the estate of someone who dies intestate, that is, without a will. "None of us had ever dealt with anything like this before. We were cowed by it all," says Sammer, who lives in Brielle, N.J. But even though she had to deal with the extra hassles of appearing in probate court and posting bond as a guarantee that she would faithfully handle the estate -- a requirement that can be waived in a will -- "once we got into it, it wasn't as bad as I expected," she says.
Where's the money?
If you're lucky, your loved one has left behind a tidy record of every mutual fund account, life-insurance policy and retirement asset, not to mention an inventory of household valuables. But more often "you're going through that person's file drawers, checkbooks, account statements, anything you can" to track down assets, says McGillicuddy. The best guide is the past three or four years' tax returns, which will show where interest and dividends have been paid or capital gains taken. But as you clean out drawers and boxes, also keep an eye out for canceled checks, deeds, stock and bond certificates, insurance policies, annuities, and evidence of employee benefits, such as a 401(k) or pension plan. Think of yourself as a detective out to deconstruct a financial life. If there's no sign of a life-insurance policy, for instance, look for a canceled check that might represent a premium payment.
Additional clues can be the name of an accountant or financial adviser in a Rolodex, PDA or old-fashioned address book. You might also seek out e-mails with financial statements attached, a spreadsheet or other computer files that might list assets.
In extreme cases you may need to search public records. If you know someone had three acres of land in Kentucky, for instance, you can search deed records at the county clerk's office, says McGillicuddy. Personal effects are usually easy to find, but not always. McGillicuddy tells of a case in which a woman's jewelry went missing for two years. "We couldn't find any of the rings she wore every day," or her diamond earrings. "It was a total mystery," the trust officer recalls -- until the woman's daughter changed a roll of toilet paper one day. The jewelry was wrapped in tissue and stuffed inside the spindle of the toilet-paper holder. Apparently, that's where her mother hid the gems every night.
A PARTING GIFT: ORGANIZATION | |||
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State treasuries hold some $23 billion in unclaimed assets, much of it stocks, bonds, bank accounts, and real-estate and insurance proceeds that are abandoned because the owner died without leaving a paper trail. If your own family would have trouble locating all of your assets, do them the favor of recording what you own and where it resides. Yes, pen and paper or a simple computer spreadsheet will do. But if you need a nudge, a fill-in-the-blank workbook or software program can get you organized. Our favorites: The Beneficiary Book (Active Insights, $29.95). The three-ring-binder format lets you add your own documents along with the detailed worksheets supplied. Personal RecordKeeper 5 (Nolo, $35.97). This software program gathers even more exhaustive detail for your heirs, and can generate a net-worth statement or create a household inventory for your own use. Your Family Records Organizer (Kiplinger's, $14.95). The software records everything from the location of your brokerage account to your home-safe combination and the kids' allergies and medications. | |||
What's it worth?
It's not hard to place a dollar value on stocks, mutual funds and other financial assets, though you'll need to research share prices as of the date of death. You don't have to worry about what the deceased paid for investments because the tax basis is stepped up to date-of-death value. But what's an antique breakfront worth? Or a baseball-card collection? For IRS purposes, you're supposed to determine the property's fair-market value (the price a buyer would be willing to pay), which may bear no relationship to what an item originally cost. A dining-room table purchased for $15,000, for instance, might net $800 at auction, says Roger Hall of Hall Hanley, a Pittsburgh company that specializes in liquidating estates. It's smart to seek appraisals for valuable jewelry, furs, antiques and collectibles, not just for Uncle Sam but to ensure that such items are distributed equitably or that the estate gets fair value for them if they're sold. For the IRS, personal items that are not particularly valuable can be grouped under the general heading "Furniture, furnishings and personal effects" and given a lump-sum value, says Julia Nissley in her book, How to Probate an Estate in California (Nolo Press, $49.99).
Debts of the deceased
My relatives were under the mistaken impression that you could walk away from the debts," says Holly Rizzo. You can't.
Before any money can be distributed to heirs, creditors get first crack at the estate. (Assets that pass directly to a named beneficiary, such as life insurance, an IRA or a pay-on-death bank account, for instance, are notable exceptions.) If necessary, hard assets should be sold to raise the cash needed to pay off debts.
Finding debts usually isn't difficult. "Creditors are not shy about finding you," says McGillicuddy. Nonetheless, state laws generally require you to notify creditors of the death and even to post a notice in a local newspaper.
What happens then can be unpredictable. When her daughter died unexpectedly in 2002 with substantial debt, Marilyn Willenbrink of Bluffton, S.C., sent letters to each creditor. Several never bothered to make claims against the estate, including one credit-card issuer that was owed $16,000. A utility company, however, made a claim for $63.
Family members are not expected to foot the bill for debts that exceed estate assets, but one credit-card company nonetheless asked Willenbrink to pay up. "Anyone could be quite intimidated by that," she says. "Fortunately, I knew I was not responsible for the bill."
If there's not enough money to pay all the debts, certain creditors get priority, depending on state law: The funeral home, the IRS and health-care providers all get paid before credit-card issuers, for instance. If the estate is insolvent, you'll need the help of a probate lawyer to sort out who should get how much.