October 2009

What you need to know… about being a “Personal Representative”

Author: Lew Wessel

All the talk lately of “death panels” and “Pulling the plug on Grandma,” begs the obvious question: What do you do if you get the call that “Grandma” died and you’re the one in charge of her estate?

If you are married or you’re a trusted sibling, child, or friend, you may very well have been asked to become the “executor” or, as it is termed in South Carolina, the “personal representative” of a loved one’s estate. What does this involve? What are the step-by-steps you’ll need to follow after the notice of death arrives? With a big caveat that this article is neither legal advice nor intended to replace legal advice, here is what you need to know:

Preplan…if Possible
When someone asks you to be their “personal representative” (PR), they are asking you to take on a huge responsibility, a potentially significant liability and a series of tasks that will eat up lots of your time for perhaps a good solid year or more. Before accepting the “honor,” be sure you really want the job. If you do, take the time to sit down with your loved one and understand exactly what he/she wants done upon his/her death. He/she owes you at least that much for asking you to be PR. As Beaufort County Probate Judge Frank Simon succinctly puts it, “The role of the personal representative is to step into the shoes of the deceased.” Obviously, the best time to understand the desire of the deceased is before he/she dies. The conversation should cover:

End-of-life-issues. Encourage him/her to complete the SC Declaration of a Desire for a Natural Death (statutory “living will” form) and a South Carolina Health Care Power of Attorney (you don’t necessarily have to be the one to hold that power). Both forms are available on the Internet, but proper execution is critical to ensuring your directives are followed. Here is a good place to consider consulting an attorney.

Funeral and burial arrangements. Encourage him/her to call a funeral home and have a preplan in place. As is stated on the National Association of Funeral Director’s Web site (www.nfda.org), preplanning does not necessarily involve prepaying.

Disposition of assets. Depending on the situation, including family dynamics, these dispositive desires can be as detailed as the last knickknack in the house. The more detailed the list, the fewer the potential family squabbles. The list can be spelled out specifically in the will, take the form of a memorandum referenced in the will or added to the will as a “codicil.”

Contact numbers for legal and financial advisors.

Location of all important documents, especially the original of the will. Other critical documents include marriage and birth certificates, Social Security card, military discharge papers, insurance policies, tax forms, brokerage and bank statements, other investment documents and powers of attorney.

Bottom-line: The more pre-planning, the simpler the job of the PR.

After the Call
When the call does come that your loved one has died, the first step you need to take is neither legal nor financial; it’s personal. As one SC jurist told me, “There’s no urgency; let rigor mortis set in.” Before launching into your PR role, let the funeral and aftermath happen; let things calm down. Friends and relatives, more experienced than I, tell me that a good funeral director will be a huge help in the first few days, with not only funeral and burial arrangements, but also with such important tasks as obtaining copies of the death certificate and publishing death notices.

Prior to probate
As discussed below, you have no legal power over the deceased’s estate until the probate court officially “appoints” you as PR. Nevertheless, you need to take several prior steps: locate, secure and file the original will, which you’ll need to open the estate, and secure and protect the deceased’s assets. For example, if the deceased’s home is now empty, changing the locks and removing valuables to a safer place might be advisable.

Probate is the statutory process (SC Code Title 62) for administering the estate of a deceased person. As described and explained in the excellent booklet: The South Carolina Personal Representative Handbook, by Elizabeth Patrick Coleman, Esquire (Published by the South Carolina Bar), it involves three phases: The Opening, the Administration and the Closing of the deceased’s estate.

The Opening is where the will is admitted and the probate court officially appoints you as PR. You have no legal power until this appointment is made! If you are designated as the PR in the will, you will normally be appointed by the court, but it is NOT automatic.

Note: You have 30 days to get the will and the death certificate to the probate court. Once that is done and you have been officially appointed PR, you will be issued “Fiduciary Letters” and a “Certificate of Appointment” and your job legally begins. As PR, you now have a legal duty to secure, inventory and value all the decedent’s assets, use these assets to pay off all the decedent’s legitimate debts, file and pay the decedent’s taxes, both income and estate, and then, distribute the remaining estate assets according to the decedent’s will or state law. Failure to perform these duties appropriately can subject you to fines as well as personal liability for unpaid debts of the deceased.

The Administration is where all the assets of the deceased are inventoried and valued and potential creditors, heirs and devisees are officially notified of their rights to the deceased’s assets. Once legal notice via newspaper announcement is made, general creditors have a strict eight month period in which to make a claim against the estate.

The court-mandated inventory is described by attorney Michael E Cofield as a “snapshot” of the deceased’s gross assets as of the date of death. Once the estate is opened, you’ll have 90 days to take this snapshot and submit an Inventory and Appraisement to the court (an extension can be obtained, particularly if the estate is taxable). This inventory will also determine the necessity of filing an estate tax return (see below).

In many cases, particularly with real estate, valuable art or antiques, a certified appraisal is highly recommended, not simply for estate tax and probate court purposes, but also to establish “basis” in inherited property for heirs and devisees. Under current law, the “basis” or tax cost for inherited property is “stepped up” to the fair market value at the deceased’s date of death. Thus, any taxable gain from the ultimate sale of that property is only the gain accrued subsequent to that date. If the numbers are large, as often is the case with real estate, the IRS will likely challenge the tax calculation and a certified appraisal is a great counter to that challenge.

The Closing is where the PR reports to the probate court that all creditors have been paid, all heirs and devisees have received their proper distributions according to the will or state law, and there are no assets remaining in the estate. The court will issue an order officially closing the estate and terminating the PR’s appointment.

The normal probate process takes nine months to a year, not simply because of normal complications, but due to the eight-month period for creditors of the deceased to make a claim. Taxable estates may take even longer to close.

Taxable Estate
The PR must file an estate tax return for the estate only if the combined gross assets and prior lifetime taxable gifts of the deceased exceed $3,500,000 (Note: this is the law for 2009 only! 2010 and beyond may be very different, so stay informed.) The PR may be personally responsible for unpaid federal and state taxes, so great care must be taken not to make other distributions from the estate assets prior to satisfying the IRS and state tax authorities.

Avoiding Probate
Is the obsession of many with “avoiding probate” warranted? Probably not. The fees in South Carolina on larger estates are one quarter of one percent of probate assets over $600,000, which amounts to $1,000 on the first million and $2,500 for each succeeding million. There are other set fees involved, but none so onerous, in my opinion, as to warrant jumping through hoops to avoid. In addition, while you can avoid probate fees, you cannot avoid the “Administration” of the estate.

Other concerns, such as ensuring access to sufficient funds throughout the probate process may be legitimate, but can also be handled through life insurance, joint checking accounts, transfer-on-death designations on brokerage accounts, etc., all of which allow for direct transfer at death without probate court approval.

The process of transferring the assets of a deceased person often involves the dangerous mix of significant sums of money and intense emotions. The most critical aspect of the probate system is that it provides a statutory framework that puts an ultimate seal of approval on the process as well as provides legal protection for the PR who faithfully adheres to its rules. Probate-avoidance trusts do not offer such protection.

Get an Attorney?
If you’ve read all of the above, you have certainly learned that if you are the PR for an estate, you have assumed a heavy load of responsibility and potential liability. When in doubt, due to the complexity or size of the estate, or, perhaps more importantly, family dynamics, get a lawyer competent in this field! It’s usually not cheap, but good advice never is and the estate, not you, will be paying the bill.

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