How Probate Works. A Guide for Executors, Heirs, and Families.

E241 What is a Probate Reserve?


Think it’s over? Even when most of probate is complete, the executor must hold a reserve.

Why keep a reserve?

Why keep a reserve?

Think of it as a rainy-day fund: An amount of money that the executor holds on to in order to pay unexpected expenses. Even after more than a year, unexpected things pop up – even with experienced attorneys involved. It’s impossible to have full certainty of what the final bills are for the estate without waiting a bit. Creditors, taxes, and accompanying legal/accounting fees can be a big deal. If the executor has no money left in the account, it’s not a good scenario.

In Episode 239, we discussed this exact situation. Our client was an executor. He didn’t take our advice to wait for the full tax clearance. Since he didn’t wait and distributed the money to the heirs, they were shocked and horrified to later receive an unexpected tax bill for over $20,000. This put the executor in a tough situation where he either had to ask for money back from the heirs or pay it out of pocket.

We had another case where the hospital creditors sued the executor for an unpaid medical bill. In this case, the lawsuit was frivolous. The hospital didn’t formalize their claim, and they were barred by the statute of limitations from being paid. They sued anyway, and the executor had to hire an attorney to defend the estate in court.

There was also a case where, long after the estate had been closed, an alleged “son” emerged and sued the estate for his share. The executor had to go through litigation to find out whether this really was the decedent’s son. Obviously, he needed money to pay for legal defense.

If you ever run into these situations, and you have a reserve, you’ll be very thankful!

How much is kept in reserve?

How much is kept in reserve?

There is no set number, but it is a balancing act. The amount must be big enough for the executor to feel comfortable that he won’t run out of money in a bad situation.

But the amount should not be too big, as you want to get as much money as possible out of your hands and to the heirs. The executor is a conduit, not an investment advisor. As professional executors, we take a lot of things into account when determining the reserve amount. It’s an art and a science!

When to release the reserve?

When to release the reserve?

Usually, it takes about a year to close an estate, and we hold a couple thousand in reserve. About one to two years after the estate is closed, we usually feel comfortable releasing the reserve. That should be enough time for any unknowns to shake out. However, even with the best planning, something could come up ten years from now. That is why I have attorney’s insurance for these kinds of situations.

In general, the statute of limitations is between three and six years. If the estate took one and a half years to close and you hold the money another one and a half years, then you’ll have more certainty that it’s time to release the reserve to the heirs. Sometimes heirs don’t mind getting the reserve later, because that second payment feels like a bonus.

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E239 Why Does Probate Tax Clearance Take So Long

E239 Why Does Probate Tax Clearance Take So Long?


Waiting for tax clearance is often the biggest delay in closing an estate. We’ll explain why tax clearance is so important and why it takes so long.

Why tax clearance is so important

Why tax clearance is so important

No one wants IRS problems under any circumstances. In estates, the IRS is a top priority creditor. They need to get paid before anyone else gets paid. It’s important to know the final figures for the IRS before distributing to the other creditors and heirs.

If the IRS is not paid properly, the IRS will come after the executor and heirs later. In order to be paid, they will come after whoever has the money, which can include the heirs who received an incorrect distribution. The executor can also be held personally liable.

Let’s say you are the executor, and you neglect to pay the taxes properly. You cut the checks to the heirs and six months later the IRS says you owe another $50,000. Imagine asking heirs to give back some money to pay taxes. Those heirs are not going to return your phone calls no matter the amount of money owed.

Must file final returns to get started

Must file final returns to get started

Sometimes it is hard to get the decedent’s final paperwork in order to make that final filing. It’s happened to us many times. We know there’s another W-2 or 1099 out there to finalize the return, but we don’t have them. If we’re missing documents, we have to request them from banks and other financial institutions. This process can take weeks, or even months, because these bureaucracies are not used to dealing with non-everyday situations like death. We often get shuffled around among different departments to get what we need.

Even worse, sometimes we have to request missing information from the IRS. This process can be brutally long. It takes a whole year just to get the tax clearance from the IRS. Imagine trying to request just one piece of paper. The IRS is overworked, and they don’t answer the phone. You end up filling out and submitting forms, then play the waiting game.

Sometimes filing the final tax return isn’t final. Even after filing the decedent’s 1040, from time to time you need ANOTHER filing (1041) to confirm that there are no capital gains on the sale of the decedent’s home.

Last bite at the apple

Last bite at the apple

This is the IRS’s last chance to get money out of the decedent. Once the tax return is filed, the IRS takes a LONG time to review it and give a final answer. They know that this is their last opportunity to collect from this taxpayer. They examine a decedent’s return way more thoroughly than a living person’s return.

The IRS reviews more than a W-2, a 1099, and a bank interest statement. Within the Statute of Limitations, the IRS looks at social security withholding, payroll tax, income tax, capital gains, and everything in between. This just adds to the already existing delay in processing.

It is frustrating for the heirs to wait so long for a distribution; however, they seem to prefer to wait rather than to sign a statement saying that they will bear the responsibility if the IRS comes after them. When dealing with the IRS, you rush to wait. There’s not much of a choice.

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E237 Translation, Please (in Probate)!

E237 Translation Please (in Probate Court)

If you have a non-US decedent, here are some documents that you’ll most likely need to get translated. Sometimes clients and also foreign attorneys approach us to explain to them what needs to be done.

Funeral bill

Funeral bill

The court wants to see the funeral bill and whether it was paid in full. They need to know who gets reimbursed for the cost. This is important because the funeral home is a top-priority creditor of the estate. From a public policy standpoint, we want to make sure the disposition of the body is handled properly. The funeral bill is so important that it gets paid before the IRS gets paid.

For these reasons, the court wants to make sure that the amount is correct, and the correct person is reimbursed.  Therefore, proper translation of this document is critical.

Death certificate

Death certificate

Translation of the death certificate is imperative, as well. Obviously, the death certificate is needed for proof of death and date of death. The date of death is also a trigger for important legal deadlines.

Also, the death certificate may include important information, such as residence address, marital status, and informant. The decedent’s address determines which court handles the probate proceedings and the marital status helps tell the story of the decedent.

Additionally, the informant information will give us a link to a family member. The death certificate is really the first document that we start to build the probate case on. It needs to be translated properly so that we can read and understand all of the information, including the dates.

Foreign probate court file

Foreign probate court file

The foreign probate court file is important to get translated. We need the entire court file, not just the foreign grant of probate letters. This file can be a lot of pages, sometimes hundreds.

Also note that the file is not just a bunch of photocopies from the court; they have to be exemplified. That is a special type of copy that is signed by the judge, then by the chief clerk, and then by someone else (triple stamped). It is expensive to have a file exemplified, and if it is voluminous, it will take a while for the court to prepare it.

Then, it will take a while for it to be translated. The court may also want the credentialed translator to sign an affidavit (you can’t just do it yourself on Google). This is a multi-step and costly process. Always check with the attorney first to be sure that an exemplified copy of the file is needed before you request one.

I recommend reading my book, “How Probate Works, “available on Amazon, so you can learn what may need to be translated if it comes from a foreign court.

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E235 3 Reasons Probate Court Takes So Long

E235 3 Reasons Probate Court Takes So Long

Clients often call asking us why their probate case is taking so long. Probate usually takes a while, but lately, it has become an even longer process. We will discuss three current, real-world situations to help you understand what your case might be taking longer than you thought.

Is there a backlog for probate?

Is there a backlog for probate?

As is the case for any bureaucracy (especially government), due to COVID/lockdowns, the courts have had limited staff and operations for over a year. This means the courts (which are generally not lightning fast anyway) are now playing one year’s worth of catch up. Probate court piles have been stacking up; it’s not as if people stopped dying.

On top of the daunting backlog, the courts are understaffed. Additionally, new clerks are hired who are not very experienced. Also keep in mind that many offices are working on a staggered in-person schedule. This leads to more delays and mistakes because there may not be enough experienced workers to provide solid training. The new clerks may have to wait much longer to get a simple answer from a supervisor who is working remotely. Meanwhile, the piles of files are stacking higher.

Can probate court change its mind?

Can probate court change its mind?

Imagine the court (clerk, staff member, etc.) reviews your file, and requires a laundry list of changes from you. This is normal and happens often. But many changes are very time consuming, such as getting papers signed, translated, ordered from other courts, etc.

Even if we think the changes are unnecessary, usually it’s just better to grin and bear and do as court instructs. Arguing about the changes won’t make it go faster, so you comply. Now imagine by the time we file the requested changes the court clerks have cycled out or changed. Now we have a new clerk who says, “who told you to do it that way? I need you to do these other five things.” This often happens with bigger corporations where you usually do not deal with the same person twice. Typically, you get to know the court clerks over the years. But lately, the turnover has been unusually high for whatever reason.

Do courts make mistakes?

Do courts make mistakes?

Yes, the court personnel are human and make mistakes, too. For example, probate court have SLOWLY adopted e-file system. Does e-file work smoothly? Not yet. We can file some things, but not everything.

We had a client who called us for a case status. He got really frustrated and called the court directly after we told him we are waiting on the court.  He called to ask court status of case; court replied that nothing had ever filed. However, we were literally looking at the computer screen showing the date that the case was e-filed and accepted. The poor client didn’t know what was going on: was his lawyer or the court lying to him? Thankfully, we put out the fire since we had receipts to prove the e-file.

These are some reasons we’re seeing as to why probate is taking much longer than usual. Hang in there; it’s a waiting game. And we’re waiting along with you

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E233 Probate Problems with Sibling Rivalries

E233 Probate Problems with Sibling Rivalries


We all know siblings who are constantly competing or comparing with each other. Let’s talk about how those rivalries cause problems during probate.

Which sibling inherits more?

Which sibling inherits more?

If there is any slight imbalance of inheritance amounts, there’s an issue of who was the favorite. Or maybe it’s an issue of who took care of mom or dad at the end of life. Maybe there is compensation or gratitude for whoever dedicated the time when things got difficult at the end. It might also be a reflection of who already received lifetime gifts or support. Maybe the parent helped with a down payment for one sibling’s house or tuition for another sibling’s children.

There could be many reasons for each sibling inheriting different amounts, but the siblings will see it the way they want to see it, and this imbalance can create conflict.

Which sibling gets more control, communications during probate?

Which sibling gets more control, communications?

It’s not just about competing for dollars or inheritance amounts. Even if everything is divided equally, there could still be disputes or harsh feelings about who gets to be the executor. In this case, it may be better to hire an independent executor. It could relieve some stress.

But, even if you have an independent executor, there could be disputes about who talks to the lawyer/executor more! We get this a lot: “I heard that my sister emailed you several times, and I want to know everything you told her.”  Making the attorney the middleman slows things down and creates more billable time.

When siblings don’t talk

When siblings don’t talk

When siblings don’t talk to each other, the attorney ends up having double communications – which increases costs. For example, I may have a phone call with the older sister to explain the file status. Then, I have the same phone call with the other two siblings separately. That’s three billed items that could have been just one.

In severe situations, siblings want to make sure the other siblings never get their contact information. We have to ensure that phone, email, and home addresses never get shared with the other! It’s a lot to keep track of.

For example, we’ve had to file probate petitions in such a way that the addresses of the heirs are hidden. In another recent example, we had to mail out 18 separate letters instead of one mass letter, so that no one has each other’s contact information. If that’s what the siblings want, we’ll do it. They just have to understand that there’s a cost involved.

To learn more about what probate entails, check out my book, “How Probate Works,” available on Amazon.

 

E228 First 5 Steps to Selling a Probate Business

E228 First 5 Steps to Selling a Probate Business


Unlike real estate, most people (including heirs and executors) have never owned a business, let alone sold one. So, when it comes up in an estate probate, understandably, folks are lost. We have a recent estate example, which included a retail business.

1. How to secure the business location

How to secure the business location

Vacant storefronts can attract crime, vandals, and the homeless. Just like when you go out of town, make sure the lights are on a timer and use motion sensors. Make sure that the alarm/security system is working and paid-up. Also, keep mail and newspapers from piling up.

2. How to get the business financials

How to get the business financials

We need these to figure out what the business is worth. Plus, any buyer will want to see the financials before they become serious about purchasing. So, you ask the CPA or piece together from prior tax returns. Many folks take a do-it-yourself (DIY) approach to business these days, so check the decedent’s computer to see if they used QuickBooks or a similar accounting program.

3. How to get a business appraisal

How to get a business appraisal

Why do we need this in addition to financials? Well, not everyone will interpret the financials the same way, so getting a qualified appraiser will allow everyone to be on the same page. Also, comparables are not so easy to find for businesses like they are for houses. Businesses are different from each other and are typically hard to compare. Lastly, a business appraiser is a 3rd party, with an independent opinion. This is beneficial for buyers and the heirs. You want to make sure the heirs don’t question you for selling too low. Therefore, having an appraiser gives them an answer for the sale price ballpark.

4. Take stock of the business assets

Take stock of the business assets

Figure out what you have and what you need to keep. I’m not necessarily referring to inventory, although that’s important, too. If it is a liquor store, you don’t want to see the inventory consumed away by someone! I’m referring more to key assets, like employees. If you want to sell the business with a manager in place, you’d better keep the manager happy. He’s actually part of the value of the business.

If the decedent didn’t own the real estate, you need to understand the lease agreement (terms, time left, relationship with the landlord, etc.). These are what you parcel together to sell the business. If it’s in a great location, but there is only one year left on the lease, that might not be very appealing to the buyer. If it’s in a great location with eight years left on the lease, that’s helpful to know.

5. How to choose a business broker

How to choose a business broker

Why do you need a business broker? As mentioned above, it’s hard to figure out comparables. If you don’t have the savvy or the experience, it’s hard to know how to compare this stand-alone liquor store to a wine store in a strip mall. People may try to sell a house on their own, but there are fewer DIY and “for sale by owner” options for businesses. It would be hard to sell without a broker. It’s not just about finding a buyer; brokers help with the grind and paperwork of closing.

How do you find a business broker? Many realtors do both. I’m not a big fan of realtor-brokers, but sometimes this may be your best bet in small cities. In larger cities, there may be more brokers available who are solely business brokers. With most professionals, it’s usually better to use someone who specializes, instead of a jack of all trades.

If the business has a CPA, check with them. CPAs are often good resources for attorneys and brokers.

If you have no luck with the methods above, look for similar businesses that have sold, and find out who they used. This may take more legwork, but the information is usually out there online.

Setting up your estate plan is the key to successful estate administration involving a business. For more information on unexpected twists and turns and why probate can take so long, check out my book, “How Probate Works,” available on Amazon.

E226 3 Strategies for Illiquid Estates

E226 3 Strategies for Illiquid Estates


Sometimes the estate doesn’t have cash on hand and only has illiquid assets like the home, a business, or artwork. But settling the estate has many ongoing bills and expenses, from court fees to movers to accountants. We’ll discuss 3 ways to deal with cash-poor, illiquid estates.

Can the heirs pay?

Can the heirs pay?

Sure – If the heirs have the funds, they can “lend” money to the estate to keep things moving. For example, the estate will be worth $200,000 once we liquidate everything, but we have no cash until we sell everything, such as a house. We usually need a couple thousand dollars to hire an appraiser and clean it out prior to the sale. It’s not a good situation.

First of all, not all heirs have the funds or ability to pay. Oftentimes, we’re not looking at hundreds of dollars, but thousands. Even if there is an heir who is well-off, it may create an imbalance. The heir who loaned to the estate feels entitled to run the show and receive information before the other heirs. When the family is upset and grieving, having a wealthy heir loan money to the estate could cause more family problems.

Especially in this situation, the executor must keep excellent records to make sure the repayment in terms of final inheritance adds up properly.

Can you get a loan against your inheritance?

This means borrowing from an “inheritance funding” company. These are basically like payday loans for heirs, but for estates. This is VERY expensive.

 

Can you get a loan against your inheritance?

 

How does it work? I’m not endorsing this, but I want you to understand it. Here is the example: 

You have an inheritance of $10,000 that you should be receiving, but you don’t want to wait. You then pledge up to $10,000 of your inheritance to the lender. In exchange for signing loan documents, the lender gives you $5,000 cash now (half). Depending on how long it takes for the estate to close and repay, the lender will keep up to $10,000 of your inheritance. If the estate takes too long to settle, the lender may keep all $10,000. Or maybe the estate settles quickly, and the lender gives you $2,000. So, essentially you paid $3,000 to borrow $7,000. Estates can take a long time, so most likely you’d walk away with just your 50%. It might be better just to wait to get your money from the closing of the estate instead. 

Heirs need to sign a bunch of paperwork, and the lender will have lots of questions for the beneficiary and executor to make sure it’s likely the lender will be repaid. 

I wouldn’t call this a good option, but it is an option. I think it’s not used as much as we think it would be, because people simply don’t know about.

Can I delay paying estate bills?

Yes, you can try to juggle and pay only the immediate bills, and delay or defer the rest until there’s cash available.

 

Can I delay paying estate bills?

 

An example of this would be negotiating to pay upon the sale of the home or business. For instance, an appraiser may want $500 up front to do the appraisal, but maybe you can offer to pay them $1,000 (but not until the closing of the sale). 

This option requires savvy and experience to determine who will bend vs. what bills are important and must be paid now. Negotiating doesn’t necessarily mean that letters will stop coming from the debt collectors and such. You will likely continue to receive monthly notices until they are paid. 

In conclusion, none of these options are great, but it’s what you do if you’re stuck in that situation. To dig into this topic a little more, please check out my book, “How Probate Works,” available on Amazon.

E223 How to Prove Paternity After Death


Earl Simmons (known as rapper “DMX”) recently passed with 11 possible non-marital children. This certainly has the potential to become a complex and interesting probate case. Are any of them heirs? How do they prove they were his kids? Can they prove it without DNA? Let’s break it down:

Does the birth certificate prove paternity?

Does the birth certificate prove paternity?

If DMX was named on the birth certificate as the father, isn’t that enough? The answer is actually YES for moms, and NO for dads. Why? Because mom is the one laying in the hospital physically giving birth. There’s no doubt there. Whereas, you can write anyone’s name down as the father on the birth certificate. The hospital doesn’t verify that a person is the father. In theory, you could write whomever you want.

How to prove paternity without DNA

If you don’t want to exhume the body to get samples, then how do you prove paternity without DNA?

The father’s name on the birth certificate is a helpful starting point, but you will need more. The court will take everything into consideration, so the more proof you have, the better.

First, a court order for child support is extremely helpful. This means that at some point, a court determined that he is the father and had to pay support.

How to prove paternity without DNA

Additionally, was there open and notorious acknowledgement? Did DMX act like he was their father? Was he in family photos? Did he send them birthday cards? Did he tell others and act like a father? Did he do fatherly things such as attended parent teacher conferences or take them for medical care? Did they post about their kids on social media? It’s going to be much harder to prove paternity if none of this existed. Not impossible, but certainly difficult.

It is quite a process to prove paternity during the probate process, especially with a high-profile celebrity. It will be interesting to see how DMX’s estate unfolds.

If you want to learn more about how probate works (what DMX’s family will have to go through), check out my book on Amazon, “How Probate Works.”

E110 What Happens to Your Debt When You Die

E110 What Happens to Your Debt When You Die [REPOST]


You probably don’t want to burden your kids or family with your debt when you die. Here, we’ll cover the ins and outs of debt and death, including an overview of what happens to your debt when you die and how to handle an estate with debt.

We’ll also cover when heirs do not inherit debt (with some exceptions), and why debt collectors keep calling heirs. Lastly, I’ll explain how your heirs can turn the table and actually increase their inheritance.

When Heirs do NOT Inherit Debt

Generally, debt dies with borrower, and the estate will pay, if it can. When someone dies, their assets and debts all get thrown into an entity called the “Estate.”

If the Estate is positive, then the heirs will inherit the assets. For example: Your aunt died with a $100,000 house having a $30,000 mortgage, no cash, and another $30,000 in credit card debt. The executor will need to sell the house and pay off the bills, but now the heirs will inherit the $40,000 remainder.

If the Estate is negative, then the heirs get nothing. However, the heirs DO NOT owe the difference. The creditors have to eat the loss, and usually cannot come after the heirs. For example, your Grandpa rented his home and pretty much spent what he had. He then died with $5,000 in his checking account, but also with $25,000 in credit card debt and medical bills. Now, Grandpa’s estate is $20,000 negative. Do his heirs have to reach into their pockets and settle the $20,000 difference? No. Credit card companies and hospital must eat that $20,000 loss.

There are some exceptions, however:

  1. Co-signers and co-borrowers on mortgage will be held responsible because they were equally responsible when they took out the loan.
  2. Another example is when parents guaranteeing private student loans (you can avoid this with federal loans which don’t require co-signers).
  3. Some hospitals will nudge a spouse or family to co-sign medical bills (check with your attorney before signing). This happens when your loved one is in the hospital and you want to make sure he gets the best possible care. You’re not thinking about the dollar amounts in that emotional state when the hospital administrator puts a pile of papers in front of you to sign in order to continue his care. Your first thought probably isn’t to call your lawyer, but you may be co-signing something that you don’t really have to sign.
  4. Joint credit cards (between husband and wife or business partners) are another exception. Some people make themselves joint signers for convenience (allowance cards for adult kids, or retired parents). Both parties might be liable for that line of credit, which might not be your intention. FYI: This doesn’t apply to authorized users, such as employees. So, you may want to make your child an authorized user rather than a co-signer.
  5. Some states (California and Texas) have community property, meaning that spouses share everything even if the asset not co-signed or joint.

Given these pretty clear rules, you may be wondering why debt collectors keep calling heirs? Debt collectors can be pretty aggressive and cold in calling the surviving family. They do it because often, it works! They can guilt or trick heirs into paying debts that the heirs never had a legal obligation to pay. It’s horrible that debt collectors take advantage of grieving, disoriented families. It’s gotten so bad that the Federal Trade Commission has made rules that debt collectors can’t mislead family members into thinking they have to pay. As with all rules, there will always be loopholes.

So, how do you turn the tables on these debt collector bad guys?

Don’t just avoid getting scammed. If you negotiate HARD enough with estate creditors, you can significantly reduce the amount you pay on the bills. As a professional executor, I’ve settled debts for as low as 33 cents on the dollar. By negotiating hard, there were tens of thousands more left for the heirs. I increased their inheritance by knowing the law and flipping the script and getting aggressive with the creditors.

Knowledge is key! Most people don’t have the information they need for successful estate administration. If you want to learn more about probate, check out my book “How Probate Works”  on Amazon

E220 5 Ways to Secure the House When Someone Dies

E220 5 Ways to Secure the House When Someone Dies


When someone passes away and you are in charge, one of the top priorities is securing the house. In order to do this, you need to start with the following five steps.

1. Take care of the lights, mail, etc. to keep criminals from thinking the house is vacant.

Use automatic lights and don’t let mail or newspapers pile up on the porch. Just think about things you might do when going on a long vacation.

2. Change the locks…maybe.

In most cases, you want to change the locks in case someone else out there has an extra key. However, if there are tenants, you cannot change the lock without a court order in New York. If you do, you could be charged with a crime. If there is a possible tenant (even your sister or cousin), don’t change the locks.

3. Winterize the home.

This can mean different things in different parts of the country. Take into consideration things like pipes freezing or bursting or snow piling up on a roof. Make sure you don’t incur any additional damage based on the weather. Probate can take a long time, so start thinking about winterizing in the beginning.

4. Set a routine to check in on the home or ask a neighbor to check in.

If you live close, you could drive by often. If not, you can ask someone to routinely check on it for you. You want to make sure that the home is in good shape and there is no criminal activity.

5. If you live in New York – tell the doorman.

There could have been a dog sitter or cleaning person who has ongoing access to the apartment. The best person to stop that (a gatekeeper) is the doorman. Let him know that your loved one has passed away and there is to be no more plant watering, dog walking, or house cleaning until someone is appointed to do that.

To learn more, read my book “How Probate Works.”