What to Consider When Choosing an Executor

At some point in your life, you will probably either choose an executor to handle your own affairs, or you will be named as an executor in someone else's will.  Either way, it is important to have a realistic understanding of what an executor does, who is allowed to be named an executor, and what some of the big mistakes that are made by executors.

I am reminded of a client I had who was adamant that the only people he would be comfortable handling his estate were immediate family members.  His mother and father had already passed away, leaving his brother, who was illiterate, and his two deadbeat children, one who was institutionalized for drug and alcohol abuse, and the other, who was in prison.  This client named his brother as his executor, who was promptly told he was unable to qualify because he was illiterate, which left his children, neither of which could serve as his executor.  The courts appointed an executor for him, someone who knew nothing about him and this is exactly what he did not want.

An executor is responsible for gathering the assets of the deceased, accurately reporting them to the court, and then subsequently distributing them according to the deceased's will.  It is such an important position and you should always carefully consider whether the person you have chosen for this position is capable of carrying out such duties.  Also, you need to take into consideration what North Carolina has to say about who can qualify as an executor.  When selecting an executor, North Carolina law says that a person is disqualified from serving as an executor who is 18 years old, is incompetent, is a convicted felon, is a nonresident without a resident agent, is a corporation, is illiterate, or is someone who the clerk of superior court finds unsuitable for any reason.    

Many times, once an executor is appointed, he or she does not honor their fiduciary duties.  One of the biggest mistakes I have seen an executor make is the failure to communicate with the family members, heirs, and loved one of the deceased.  It's understandable that family wants to be kept in the loop during the administration of the estate.  Please ensure when you are choosing someone as your executor, that you choose someone who is able to ensure family harmony.  Sometimes, the deceased leaves instructions for the executor to distribute family heirlooms as they see fit and you want someone who is trustworthy and can manage family dynamics in this scenario.
Another common error an executor makes is failing to hire professionals as needed, such as CPAs, tax professionals, appraisers, attorneys, financial advisors, etc.  You need someone as your executor who can recognize when something is too complicated and call in help when necessary.  Mismanaging your estate could be detrimental to your heirs and loved ones who you designated certain money and property.

Please consider all of these issues when choosing someone to handle your affairs, and for further, more detailed information, please consult an estate planning attorney.

The US Supreme Court Ruled on Gay Marriage...What Does It Mean For Estate Planning?

When the US Supreme Court ruled in June of 2015 that a state ban on same sex marriages is unconstitutional and in violation of the equal protection clause of the 14th amendment, it changed the way estate planning attorneys think about estate planning for same sex couples and domestic partnerships.  As a result of the decision, there are also several considerations same sex couples should think about.  In an article written by the Trust and Estates Advisory Group of the Katten Law Firm, "Eight Key Estate Planning Opportunities Arising From the Supreme Court's Decision on Same-Sex Marriage," they point out the eight most important things to consider from an estate planning perspective.  We should take the time to consider   

1.  Married couples are given several tax breaks, and same sex marriages are now also afforded those same privileges.  Since there is an unlimited marital deduction for estate and gift tax, this is something all same sex couples should consider when deciding whether or not to remain a domestic partnership or to take the plunge and get married.

2.  Same sex married couples should consider revising their current estate planning documents to make sure that the bequests given to spouses are still appropriate.  

3.  Couples should review their retirement account beneficiaries once married because a surviving spouse can roll over a deceased spouses' retirement account without being required to take minimum distributions until the required minimum age.  

4.  Consider replacing individual life insurance policies where each spouse is the designated beneficiary of the other spouse with survivor policies.

5.  Each spouse should consider splitting gifts between themselves.  Before the Supreme Court decision, each spouse could make gifts up to the annual exclusion amount.  Now,  each spouse may make gifts from his/her own assets and have these gifts considered to have been made 1/2 by the other spouse.  

6.  If living in a community property state, there may be some benefit to converting separate property into community property.  

7.  Tax returns should be amended both for this year and the previous year to reflect the marital status.  

8.  If there is one spouse that is not a citizen, they can now seek their residency or citizenship.  

What Should a Surviving Spouse Do?

While most of us had a wonderful holiday season and enjoyed time with family and friends, others were dealing with the loss of a loved one.  This was my grandmother's first Christmas without my granddad and they were married for 65 years.  Her Christmas traditions of cooking and wrapping presents and planning for the eleven grandchildren and thirteen great grandchildren were replaced with what steps to take for wrapping up my granddad's affairs and planning for what she would now do without him here.  

The emotional trauma of death is hard enough on people, but the financial uncertainties and transactional headaches that come along with this make things so much more complicated.  For people who just lost spouses, there are several things that need to be done, but there is a timeline I would suggest so that things seem more manageable and not so overwhelming.  

Immediately:  

a.  Notify family and friends and make sure the surviving spouse has constant support.  

b.  Locate insurance policies, will, safety deposit boxes, military records, bank records, etc

c.  Obtain ten copies of death certificates.  There will be several situations where the surviving spouse will be asked for a death certificate, such as banks, insurance companies, DMV, the courts

d.  Contact the deceased spouses' health insurance company or Medicare to find out if there is any coverage for the surviving spouse 

e.  Make sure they know how to keep the household running, which means they will need to access the spouses's bank accounts right away.  Typically, the spouse with have one of three types of accounts:

        1)  Joint Account with Rights of Survivorship, hopefully with surviving spouse listed as the joint                account owner, which means they will have immediate access to the funds

        2)  Payable on death account:  Hopefully, the surviving spouse will be listed as the beneficiary,                so they will have immediate access to the funds once they are able to produce a                                    death certificate  

         3)  Individual account:  If the account is solely in the deceased spouses' name, the surviving                       spouse will need an order from the court appointing them or some other family member the               administrator or executor of the estate in order to access the funds.  This may take some                     time, so the surviving spouse should be prepared just in case this is the only kind of account               available to them.

In the first few weeks after death:

a.  Notify the Social Security Administration because there are some funds that may need to be returned

b.  Contact financial advisors and tax advisors

c.  Apply for life insurance, veterans benefits, pension, social security or any other benefits that the surviving spouse may be entitled to

d.  Apply with the court for the spouses' elective share

e.  Pay essential bills

In the first year after death:

a.  Work with a CPA to file the taxes for the decedent's returns

b.  Find out if the surviving spouse will need to pay estate tax

c.  If there is a trust, have an attorney help administer the trust properly

d.  Make sure surviving spouse has an estate plan

There are so many issues that arise when a spouse or loved one dies, and we need to really think about what kind of plan we will have in place when the time comes.  If you need want more detailed information, please contact your tax professional or estate planning attorney.

What should you do with your will after you execute it?

In North Carolina, if no one can find the will after you die, it will be presumed that you destroyed it and it will be deemed revoked.  Your property will then pass by intestacy, meaning the state of North Carolina will determine who you property passes to.  

Even if every member of your family has copies, the North Carolina courts will require an original.  If there is no original, it’s possible to probate a copy, but the witnesses to the will will have to come forward, which is not possible at times, and there will be a lot of time and costs associated with getting a copy probated.

Where should you keep your will?

With the lawyer—Some attorneys will keep an original on file in their office, although I don’t think this is being done as often as it used to be because it creates liability for the attorney

In a firebox at home--This is a good idea as long as the people in charge of your affairs after you die knows where the firebox is.

File with the Clerk’s office—You can file the original at the Clerk's office, but for a small fee.

In a safe at home—Although these are not always fireproof, this is a reasonable alternative, as long as someone knows the will is located here.

Safety deposit box-- This is not the best idea, as banks in North Carolina will require a death certificate, a fee, and possibly a court official before they will allow a family member to access the safety deposit box.

In a freezer bag in the freezer—the freezer will survive a surprising number of calamities (I’m from Carthage---and you’d be surprised how many people from the country use this method).  Freezing solid eliminates mold and moisture issues.

It's just as important to make sure the people who will be in charge of your affairs when you die known where your will is located, and that this location is a safe place, as it is to execute a will at all.  If you have questions about where to put your will and how to keep it safe, please contact an estate planning attorney.

What happens if you don't have a Power of Attorney?

Power of attorney documents are executed when the person has capacity to legally designate someone as their decision maker.  However, some people wait too long and don’t have anyone when the time comes that they are unable to do so.  If this happens, loved ones or retirement facilities, or caretakers will have to file a guardianship proceeding to ensure that someone is legally able to make decisions on the incompetent person’s behalf. 

I have had the opportunity to do many guardianship cases.  A lot of them turn out great and mom or dad walk away with their child taking care of them for as long as they are still alive.  However, sometimes things don’t always turn out the way we expected and guardianship proceedings can go very badly.

I distinctly remember one case.  Dad died and mom was left living alone.  She didn’t have a power of attorney or anyone to make decisions on her behalf, but luckily for her, she had six children who all loved her dearly.  Mom was a professor for thirty years, brilliant lady, with a lovely home and many other assets.  She hadn’t planned for the future because she felt like her six children would band together and help her.  She eventually lost her faculties and needed assistance making financial decisions and important decisions regarding her healthcare.  When this happened, since she didn’t have a designated power of attorney, her children initiated a guardianship proceeding.  The children began fighting over mom’s care and wanted control of her money and decision making power about whether or not she would have to move to an assisted living facility.  Because the Court saw the discord and the arguments among these six siblings, the Court decided it was not in mom’s best interest for any of her children to be the guardian and the Court appointed a public guardian.  A public guardian is usually someone with the county’s health and human services program who serves as guardian when there is no one appropriate to serve. 

Now, keep in mind, mom has six children who love her, who knows her wants and needs, and who know what would make her happiest.  The public guardian, although possibly very good at their job, has no history with this woman.  Because the children were angry with each other at this point, the public guardian decided it was best that mom not see the children at all because they felt it was stressful for her to be in the midst of their discord.  Mom lived the rest of her life with supervised visits with her kids and very limited time with them. 

My point is not to scare you, but to make you aware that if you don’t have a plan, and you don’t designate someone to act as your decision maker, the county can step in as that person who makes the most important decisions of your life.

  

If you are interested in planning for your care and want a power of attorney, please contact an estate planning attorney.   

Leaving An Inheritance For Your Furry Family Members

For most of us who own pets, our pets are members of our family.  This is exactly how celebrity Leona Helmsley felt about her dog, Trouble, when she left $12 million for his care.  Unfortunately, she was not well advised and none of the instructions she left in her will were followed....the Court eventually reduced Trouble's inheritance to $2 million.  Leona, along with so many other pet lovers, are not well prepared and their dearly beloved pets are left behind uncared for for many reasons such as conflicts with other pets, allergies, and failed promises by family and friends.  

Estate planning for pets is a relatively new concept and estate planning attorneys are not asking clients about their pets as part of their routine intake questions.  As a pet owner and lover myself, I hope that one day, this will become a routine question since the law views pets as property and most people don't think of listing their pets as beneficiaries of their estates or trusts.

You may have received advice to list instructions or wishes in your will for someone to take care of your pet, but this is not enough to guarantee your pet's care.  Wills are not immediately effective upon death, so there will be a lag time between your death and the time your will is probated and enforced.  Also, your wishes or instructions are just that....your wishes cannot force your friend or family member to take care of your pet.  Wills also do not allow the disbursement of funds for the lifetime of a pet, so there will be no guarantee that funds will be available as long as your pet is alive.  There are ways, other than a will, to ensure long term care for your pet.  Some states recognize honorary trusts for pets, and fortunately, North Carolina is one of those states.  

The North Carolina Uniform Trust Code provides that a trust for the care of a pet alive at the time of the creation of the trust is valid, that no portion of the principal or the income of the trust may be converted to the use of the trustee or to any other use than for the benefit of the pet designated in the trust, and that the trust terminates upon the death of the animal.   Trusts are set up to provide a long term plan of care for your pet, that can start promptly upon your death and last until the pet is deceased.

There are many nuances of creating an honorary trust for your pet, such as reserving certain assets to leave out of probate, so that there are funds immediately available for your pet, naming a caretaker, and naming an alternate beneficiary upon the death of your pet.  Please contact an attorney if you have pets and are interested in ensuring their lifelong care.  

CHILDREN SUING THEIR OWN MOTHER OVER A BEACH HOUSE SHE GAVE THEM? YOU CAN'T MAKE THIS STUFF UP!

The facts of this case are fascinating and can be found in Davis v. Davis, 2015 NCBC 95.

This case caught my eye because I was trying to figure out how the language of a life estate was an issue that was heard in the NC Business Court, but once I started reading, I got much more than what I bargained for.  This case was in front of the NC Business Court because it involved issues dealing with the functions and operations of an LLC.

But, who cares about that?  That's definitely not the interesting part. 

In 2013, Plaintiffs Melvin L. Davis, Jr. and J. Rex Davis filed suit against their mother, Dorothy Davis, over a beach house at the Outer Banks.  Dorothy Davis and her husband, now deceased, purchased the beach house years ago.  From time to time, they would rent the home when they needed extra cash.  Mr. and Mrs. Davis decided they wanted to gift the home to their four children, but in order to satisfy certain other financial obligations, they gifted the home to MKR, LLC.    Plaintiffs, along with their sister Kaye, are the sole members and managers of MKR.  Davis v. Davis., 2015 NCBC 95, paragraph 11.  Plaintiffs hired an attorney to prepare the documents related to the deed from Mr. and Mrs. Davis to MKR.  The deed includes the following language:

    "The Grantors hereby reserve unto themselves, a life estate in the Property, said life estate to be         personal to the use of the Grantors, thereof, and may not be utilized by any other person, nor             may it be reduced to a cash value for the benefit for the Grantors, or the survivor thereof, but             must remain always during the lifetime of said Grantors, or the survivor thereof, available for             their individual and personal use without interference from either the remainder men or any             other person." Davis, paragraph 13. 

The attorney who drafted the deed testified that he drafted this language with the intention that it would prohibit Mr. and Mrs. Davis from renting out the Property during their lifetime.  He testified that he went over the documents with Mr. and Mrs. Davis and that they understood.  When Mr. Davis died, Mrs. Davis entered into a rental agreement with Outer Banks Blue, LLC, giving Outer Banks Blue, LLC authority to rent the property.  Once Mrs. Davis entered into this contract, the Plaintiffs filed suit and alleged that Mrs. Davis is precluded from renting the property based on the language of the deed.  Davis, paragraphs 15, 22, 23.

I mean, who wants renters ruining everything??

The Court cited several cases that reminded the parties of the purpose of creating life estates and the general policies that follow.  "An unlimited restraint on alienation of a life estate is against public policy, and therefore, void."  Davis, paragraph 27, citing Brinkley v. Day, 88 N.C. App. 101 (1987).  The Court agreed that there are certain limited restraints on alienation of life estates, such as indirect restraints on conveyance of a fee subject to a possibility of reverter or a condition subsequent.  Davis, paragraph 29, but in this case, there is nothing limited about the restraint on Mrs. Davis' life estate.  The Court ruled in Mrs. Davis' favor and found that the provisions in the deed are void.  Davis, paragraph 34. 

I think the Court definitely got it right this time.  If Mom gifts her children a beach house, it would seem contrary to public policy and fairness in general to allow the children to stop Mom from renting her property during her lifetime.