When a loved one passes away, our lives are suddenly turned upside down. Family needs to be notified. The funeral must be planned. Bills start stacking up. The list goes on. We have various emotions, all the while knowing that as time progresses, legal matters require attention. While you may attempt to “do-it-yourself,” there are a number of pitfalls and problems that can come with serious consequences.
Danger #1: Misinterpreting Documents
Understanding estate planning documents is not an easy task. Wills and Trusts are typically drafted by attorneys and have complex, purposeful provisions. The documents provide the foundation of the estate, such as who is in charge, how to handle taxes and debts, and who receives distributions. Personal representatives and trustees have a fiduciary duty to adhere to the documents, and if there is not a thorough and complete understanding of the law, they may be held personally and financially liable for mistakes or discrepancies.
Danger #2: Mishandling Documents
Once documents are reviewed and deemed valid, then the fiduciary needs to determine how to proceed. Do they get filed with the court? Is there a reading of the Will? Do you send to the bank? There are statutory requirements of what happens and where to file. Just because the decedent died in one county, does not mean that it is where the estate should be opened. Also, many individuals have Trusts and most jurisdictions have enacted specific laws as to providing notices to beneficiaries, rights to receive reports, etc. If the document is filed incorrectly or put into the wrong hands, it may be detrimental to the administration, thus causing delay, adding cost, and leaving risk for scrutiny and interpretation.
Danger #3: Missing Deadlines
Life is full of deadlines and dates, and estate administration is no different. There are specific time frames to adhere to when documents must be filed. Also, there are additional time periods for tax filings, notifying heirs and beneficiaries, and preparing accountings. If you miss a deadline, you may be liable for your mistakes, subject to a court hearing, or to show cause why you failed to meet your duties.
Danger #4: Misunderstanding Creditor Claims
A major part of most estates is how to handle debts. It is not a race to pay the bills, as there is a legal order of priority that must be followed, especially important when there may not be sufficient assets to satisfy the debts. It is crucial to understand creditor filing windows, notice publication in the newspaper, statutory allowances, and even ways to limit how creditors may collect. So, do not give away the decedent’s car or cash those last paychecks, as it may come back…out of your pocket!
Danger #5: Mismanaging Estate Assets
As the old adage goes, ignorance of the law is no defense. The fiduciary must manage estate assets with precision and knowledge. Should you appraise property? What is the cost basis? How do you complete forms for IRAs, stocks or insurance? If accounts are not reconciled, then beneficiaries may successfully hold the fiduciary liable for shortfalls. Also, if distribution occurs too soon, then any remaining expenses may cause the fiduciary to be in the red. Further, the Court or heirs may audit the estate regarding decisions made during the process.
Danger #6: Neglecting Tax Filings
Taxes. The word is usually enough to make anyone cringe, especially as the personal representative is responsible for filing the decedent’s income tax returns. Also, there may be business taxes, estate taxes, and inheritance taxes. These matters must be accurate and comprehensive in order to bring finality to the estate. If the courts or taxing authorities are not satisfied, the executor may encounter potential liability, penalties, and disgruntled family members.
A fiduciary is chosen to act in our best interests and follow our wishes. Acting on your own may result in undue stress, wasted expense, time drain, and liability exposure. The dangers of DIY administration are abound. Working with an experienced attorney to navigate these dangers can help save money, preserve family relationships, and provide peace of mind.