Executor Testing of an Estate Plan

So, you are the executor, or maybe the successor trustee for a family member’s estate. Waiting until your family member dies is probably not the best way to get introduced to what is in their estate plan or trust.

Whatever level of knowledge you have about the contents of the plan or trust, why not suggest that you and your family member ‘test’ it together, to make sure it will carry out your family member’s intentions?

Not only will this give you much of the information you should know about the plans, but it will also open the door for you and your family member to really get into discussions about their real intentions and any issues either of you can foresee to carrying those out.

How can you help your family member test the trust or plan?

Help them assemble their documents.

Make a check list of the potential documents they might have come up with such as a will, trust(s), partnerships and corporate documents, powers of attorney, durable powers of attorneys and ask your family member to look it over and add to it. If you have copies of any of these, bring them to the table – you may discover that your family member has made changes and not given you a new copy!

Encourage them to re-check any beneficiaries they have specifically set up.

Make a list for them on things you know about. Have they a transfer on death on real estate or personal property? If they have retirement accounts, who are the beneficiaries? Remind them that the trust rules any transfer for anything it contains – institutions should not have let specific beneficiaries be set up on a trust account.

Help them figure out how to find out what beneficiaries are currently listed on an account.

Check on taxes and exclusion amounts.

Ask your accountant for the latest information concerning gift and estate tax exclusion amount as it changes frequently. Also get the current estate tax rates for your state and federal taxes. You can do this and just present it to your family member as part of the review.

Help them find the exact ownership titles for each of their assets.

Create a spreadsheet or form and sit down together with your family member (if they are willing) and make a list of everything in their estate, it’s value and how it is titled.

Walk through the information together.

Now, walk through what will happen at the death of the person that will trigger you having to deal with the estate. This walk through is intended to find any issues with the current plan, as it would be executed under the laws of your family member’s area. On the list of the estate’s assets list what would happen to each one.

For each asset list which ones:

• Would be distributed immediately to specific beneficiaries.
• Would go through probate.
• Would be distributed through a trust
• Would be distributed in some other fashion (partnership, business, charity, etc)

Things to keep in mind as you do this walk through:

• Keep it business like – you don’t want your family member to think you are drooling over an inheritance.
• Make notes for yourself on your family member’s wishes.
• Ask if you can make copies of everything.
• Request to be notified of changes to the plan or trust.
• Be delicate when bringing up potential issues between heirs – use ‘what if’ instead of ‘he will’.
• A designated beneficiary on a specific asset, overrides a will or trust or any other document your family member has prepared.
• The death benefit of any life insurance policy is included in the owner’s estate for estate tax purposes.
• Do the rest of the potential heirs understand what your role is to be and agree with it?

As you review your list, think about:

• What assets will pass directly to beneficiaries – which ones? What if one of the primary beneficiaries is already dead? What if he or she declines the asset? Is there a final beneficiary that can take possession if all other listed beneficiaries are deceased? What if the beneficiary is a minor? Who will manage that asset for them?
• What assets will be required to go through the probate process?
• If there is a will, but no trust and have assets that aren’t assigned specific beneficiaries the asset will probably have to go through probate. If your family member has designated a minor as a beneficiary, and there is no designated guardian, the child’s parents may have to go through court to be able to manage the assets.
• Remind your family member that assets which go through probate are going to be in public records.
• What assets will be available to you as executor or successor trustee to manage the estate before it is distributed?
• Does your family member have any wishes that have not been put in writing? Maybe she wants her Mother’s jewelry to pass along to her granddaughters or perhaps he wants his Roth IRA to be left funded as long as possible to secure the tax free benefits for his grandchildren. Encourage your family member to put these things in writing and store those notes with their plan. Encourage your family member to let the rest of the potential heirs know about these things to help bring out any issues with them during your family member’s life (otherwise you will be dealing with those issues!).
• Making sure you, as executor or trustee know where to find all pertinent documents and understand how you will be able to get to them. If they are stored I in a safe deposit box, are you a signee on the box? If they are in the family member’s house, can you get in?

Now knowing the details of the plan and potential issues, are you still prepared to function in this fiduciary role?