Author’s Note: This is the second in a series of personal finance columns on the subject of being the executor of an estate. These columns are based on my own personal experiences in this regard. Individuals should consult a professional advisor and take their own circumstances into account. While my primary objective is to show my readers how to maximize the value of the estate, I will also try to prepare my readers for the unimaginable difficulties faced by the executor.
Getting Professional Help
You will need two types of professionals to guide you through the process of performing your duties as executor — a probate attorney and an accountant. The probate attorney should be hired in the state in which the deceased was a legal resident, as probate occurs at the state level. There is no need to find a new accountant if you already have an accountant who is handling your personal financial affairs. You should get an estimate of the probate attorney’s fees before engaging, and you should avoid an attorney who wants a percentage of the estate, as opposed to one who will bill you at an hourly rate and provide an estimate of the number of required hours.
Strictly (legally) speaking, a probate attorney is not required in some states. But I highly recommend that you engage one anyway, as a good probate attorney may save you more that what he / she costs you. In fact, if you do not hire a probate attorney, you will probably make some very wrong assumptions that may end up costing you a lot of money. Without going into a lot of detail, the crux of the issue is this: the laws that apply to the living do not always apply, or apply in the same manner, to the deceased. For example, you would likely assume that the estate is legally responsible for all debts and obligations incurred by the deceased, and in the words of George Gershwin, “It Ain’t Necessarily So.”
An accountant is absolutely necessary in all cases. Even if you currently do your own taxes, I would wager that you have never completed an estate tax return, which is markedly different from a personal income tax return. Your accountant will have at least two, and possibly several tax returns to file: the deceased personal income tax return (state and federal) for the year of his or her death (up to the date of death), and the estate’s income tax return for the balance of the year.. If your loved one died early in the year, prior to filing a tax return for the previous year, your accountant will have to file state and federal tax returns for the year prior to death. And, of course, if the estate remains open beyond the year of death, additional estate tax returns could result.
Just as a good probate attorney does, a good accountant will likely save you more than his / her cost. Once again, if you do not engage an accountant, you would likely assume that the tax laws apply in the same manner to the living and the dead, and you would be wrong.
Here’s an example. When you buy a stock, you track your cost basis for the purpose of reporting capital gains or losses when you sell the stock. Now imagine going through your loved one’s financial records and learning that he had been acquiring Bellsouth stock through a DRIP for the last 20 years. Unless he saved all of his monthly statements, there is no way in hell that you are going to be able to calculate the cost basis for this stock when you sell it and distribute the proceeds to the heirs.
Well guess what. The government apparently understands that figuring out the cost basis on stock purchased by the deceased is a near impossible task. That’s why the cost basis automatically becomes the value of the stock on the date of death. That’s right — if the deceased purchase stock for $10 thirty years ago, and that stock is now worth $10,000, the cost basis for tax purposes is $10,000, not $10. Your accountant adds value by understanding this and other tax regulations that will save you a lot of money. (Note: my accountant tells me that Congress is currently thinking about changing this, no doubt because it makes sense.)
Getting Other Help
In part 1 of this series, I described how the task of executor is physically, mentally, and emotionally demanding. In many cases, it would be impossible for one person to execute both the physical and mental (administrative) tasks in a timely manner. My advice is to seek help from your spouse if you are married. In my personal situation, my wife took responsibility for all of the hard physical work, disposing of all of the deceased’s personal belongings and selling the deceased’s real property. What she did was truly amazing: In the space of two weeks, she emptied out two condos, selling furniture and giving away clothes, and sold both condos at fair market value.
Of course, this only works if you are willing to completely delegate these tasks and accept whatever decisions your spouse makes without second guessing them. You can’t delegate this big a job to somebody with the idea that you are going to be consulted on every decision they make. It just won’t work. Your spouse may not always make the same decisions you would, but there is seldom a right and wrong decision, and the real harm often comes from lack of a timely decision.
Note: Charlie D’Huyvetter, CPA, provided inputs to this column and reviewed it for accuracy.
