Introduction: A daughter appointed to
handle her deceased Mom’s $700,000 estate recently asked me if she
could just distribute everything to herself and her brother. She
didn’t want to go through all of the gobbeldey gook and wanted to
get this all done in 10 days.
Her Mom had a living trust so no court probate proceeding was needed
and she and her one sibling got along fine. I told Sylvia (not her
real name) she could, but she probably shouldn’t! (See
our Probate and Estate Administration FAQ #13 on this point for more
information.) The death of a parent is an emotional situation
but, if the parent has any significant assets, then there are a
myriad of other important things that are also going to be an issue.
What Needs to be Done: First,
Sylvia is going to need to identify and take control of all of the
bank and securities accounts. Then she’s going to need to get
everything valued, dispose or distribute the personal effects, get
the creditors paid (even if it’s just the electric and phone
company), review and probably liquidate the securities accounts,
have the CPA prepare the final tax return, get any remaining taxes
paid, and then get everyone to agree to the distribution. So there’s
a lot that is going to go on.
Level of Formality: In handling all
of this, Sylvia can take one of three approaches: super formal,
semi-formal, and informal. Super formal is going to be the most
expensive and take the longest; obviously, informal is at the other
end of the spectrum. Super formal will involve court approval of
what Sylvia has done to accomplish all of her tasks. Informal will
be the approach Sylvia was first advocating. Semi-formal, which is
what I typically advise clients in a family friendly situation to
follow would involve procedures to (1) allow all of the siblings to
review Sylvia’s actions and transactions so that they feel
“comfortable” that they are receiving the appropriate amount from
the estate and that nothing has been skimmed and (2) avoid open
ended liability for Sylvia, i.e. cut off Sylvia’s liability to her
siblings (to the extent that liability can ever be cut off).
Why should Sylvia take the semi-formal approach in a family friendly
environment? She needs to recognize that she is taking a job
(successor trustee of her Mom’s Living Trust) that is fraught with
responsibility. Responsibility is just another way of saying
liability–liability to her siblings, to the creditors, and to all of
the different taxing authorities. If something goes wrong or one of
her siblings thinks something went wrong there could be a lawsuit.
Most people in Sylvia’s shoes would initially say that there is
nothing to worry about. But there is!
Illustration: I once had a case in which
the daughter was handling the settling of the Dad’s estate. She had
one brother and one sister and they were the only three
beneficiaries of the estate. I did everything I could to get her to
follow the semi-formal approach but she insisted on being quite
informal. By the time she was ready to distribute, her sister had
died and she was now dealing with the ex-brother in law and the
deceased sister’s two children. They wanted to see all of the books
and records of the trust. Things dragged on, court lawsuits were
involved, and attorney’s fees mounted. Over $150,000 of attorney’s
fees later, the court ruled that she had done nothing wrong. Much of
this could have been avoided if she had followed my advice and
hadn’t insisted on being informal.
Moral: The moral of the story is that the
friendly family members you are dealing with today may not be the
ones who you are dealing with when you are ready to distribute and
those new people may not be as friendly. How many people can say
they get along with their sibling and, if they do, can say they get
along just as well with their in-law as they do with their sibling?
You don’t necessarily need to get court approval for everything, but
you should provide complete and accurate books, records, and
financial reports so that you can get a release from liability and
close things out. For more information on settling an estate both
with or without a Living Trust and with or without Probate, see our
Probate and Estate Administration FAQ.