The WAY to WOW Shows
What Executors Need to Know
July 31, 2023
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[0:11] foreign hello and welcome to trusts and Estates weekly weekly there you go I'm your host Kevin demmel and we're here every Monday morning at 10 A.M Pacific Time 1 p.m eastern time with an hour in for Central and and mountain and we talk about all things related to probate trusts Estates estate planning weather for one's personal finances or for professionals who are interested in helping people

[0:46] with their trust and estate matters either as their primary business or as an additional line of business for something they're already doing such as accountants and lawyers today we are going to talk about the probate process so I'm going to jump right into it um because there's a lot to cover where is my here it is okay there we go so trust and Estates weekly yeah there

[1:22] see I never know when it's going to work and when it's not so everything we do uh revolves around the three pillars of attainment we're here in the uh Pursuits pillar primarily in the finances section okay you're gonna see we're going to talk a little bit about relationships as well and what we're going to do we're gonna what we're going to talk about is navigating the probate process what executors need to know okay so let me sort of set the stage for this we've covered some of these Concepts before

[1:57] but probate is a legal process whereby the estate which is the assets of a deceased person are transferred to the rightful heirs now typically in the process of going through probate there will be a will and that will will determine um number one it will appoint who the executor is and two it will determine who The Heirs are now when someone dies

[2:36] in test tape and I did a whole show on intestate succession a few weeks ago so if you want to go to my YouTube channel you can check that out um if someone dies in test State meaning they do not have any documents explaining to whom they want their property to go there may still be a probate filed okay and in that case the person who executes the probate makes it happen is called an administrator not an Executor okay so a will appoints an

[3:11] Executor um they're typically confirmed by the court and it the but when there is no uh will then the court or or sometimes like for example I served as an administrator for a will because I wasn't the executor the person who was appointed as as executor for various reasons didn't want to fulfill that Duty and so I was I was appointed in order to handle that job but I was not not an Executor then I was an administrator okay so an administrator is someone the

[3:48] court appoints in order to see to it at the pro probate process takes place now I'll mention this probably a few times during today's show but unless the executor and I'm going to just use the term executor today although everything I'm saying would apply to an administrator as well unless the executive I'm sorry the executor is a lawyer who knows the probate process an Executor will have a a probate or I should say a lawyer specializing in

[4:25] estate matters advising him and probably an accountant as well okay so it would be unusual for an Executor to literally do all of these things alone there's probably going to be a team of people um typically made up of an Executor a lawyer and an accountant minimally in order to get these things done now there may also be a professional fiduciary there may be real estate people involved there may be insurance people involved there may be Financial Services people involved it'll depend on

[5:02] um the size and complexity of the estate among other issues Okay so and I've mentioned this before we call everybody an Executor now it used to be that men were executors and women were executrixes um I I don't think we're seeing that uh term executrix anymore so um executor applies um regardless of whether it's a man or a woman all right so I'm gonna go through the five key um issues that executors need to know

[5:40] about in order to effectively probate go through the probate process probate and estate okay so number one the executor needs to understand the probate process Okay so probate happens under the supervision of a court okay so everything the executor does is subject to review by the court that starts out with the will being validated okay just because an Executor presents a

[6:17] will to the court the court is not obligated to say oh okay check that off okay if if there's reason to believe that the will being presented is not uh the most recent will or for some other reason is invalid the court does not have to validate the will okay so that's the initial process um the initial step I should say in the in the process okay next will not and and by the way not these don't happen necessarily in order

[6:52] once the will is validated though and the executive and the executor has what are called letters testamentary so letters testamentary are what give the what give the executor his authority to act prior to that the executor although he may be named in the will as the executor has no authority to act on behalf of the the estate it's not until the Court gives him the letters testamentary that he has that Authority Okay so the the process then essentially involves identifying all the assets

[7:30] settling debts and taxes and then Distributing the remaining assets to The Heirs okay now it sounds like you know hey three simple steps one two three not as easy as it seems first of all identifying assets are they located in more than one state are there assets that maybe even the decedent doesn't know about okay so states keep um lists of unclaimed property and those lists need to be checked okay so

[8:05] um in order to do a proper job as an executor that would be something that would need to be done in order to identify assets okay settle debts and taxes well that seems pretty straightforward okay we're going to talk more about that in in one of the other steps I don't I'm not going to get into a lot of it right here but again it's not as simple as it sounds it's not simply oh okay here's a list of bills write checks write checks right well of course nobody writes checks today but you know make payment made payment pay I'm done not at all not at all okay and

[8:40] then finally distribute the remaining assets okay again sounds like a simple step I've got a I've got a will here it lists The Heirs it says who gets what where it says in what proportions it's to be distributed and boom there you go okay again not necessarily A straightforward function okay all of this has to be done with care with with um um investigation and with a proper compliance with the law all right so let's go on okay so let's start out now next next uh

[9:17] thing the executor an Executor needs to know is to identify and gather Assets Now when I say gather assets I don't literally mean like you know gather them in your office or something like that of course um what it means is finding out where they are and making an accounting of the assets okay now assets there are basically two types of assets tangible assets and intangible assets tangible assets are assets that you can touch okay it could be real estate it

[9:53] could be and by the way there's there's two types of tangible assets basically there are um there's real property and there's personal property so real property is essentially real estate could be a house but there could be other real estate okay there the person could have maybe owned the a building in which they conduct their business or they may have investment real estate okay all of that needs to be identified and gathered up in the sense of accounted for okay they may also have um a coin collection they may have

[10:28] artwork they may have I did one estate where um the decedent left behind a ranch with horses and they were very valuable horses um because they were uh fairly rare um and and and quite beautiful okay so and and by the way you know I think I mentioned this in in a previous show it was an interesting situation because um the person inheriting the horses was the child of the decedent and we needed

[11:03] to get the horses appraised for for uh if state tax purposes and you know I hunted around for someone who could uh appraise these horses and everybody told me the same thing well you know the daughter who was the heir was the person most knowledgeable about it and so she's the one who should value these horses that none of them felt that they could do anything close to as good a job as her right a very uh really the only time I've ever uh confronted that particular situation where an heir is

[11:39] going to be providing information for settling the estate normally you wouldn't do that it's a it's a conflict of interest right but that's all part of gout of identifying and Gathering the Estates uh the I'm sorry the assets figuring out what they're worth okay if it's especially if it's a large estate the valuation of the assets can be crucial okay so those are those are um uh tangible assets then you can have intangible assets you can have bank accounts brokerage accounts um uh you know treasury uh certificates

[12:16] like what do you call them savings bonds um and and and by the way um the person the person may own a business that business just may own trademarks that are very valuable okay so um depending on again the size and the complexity of this the estate there can be many types of assets and they can be in various locations not just necessarily here in the United States it could be located in other countries as well okay and there could be in a variety of Institutions okay I did a a a

[12:52] a a a a a a situation um not not too long ago where even though it wasn't a huge estate um the assets were at one two three four five I think six different institutions if you can imagine right and and I mean it was just a job you know Gathering all the data okay now identifying and Gathering the assets also presumes that the executor will safeguard them now when I say Safeguard them what I

[13:28] mean is protect them from loss in value so if we're talking about let's say a house okay now perhaps the decedent was the last occupant of the house so now the house is empty what needs to be done to make sure that that house does not deteriorate now that no one's living there any longer okay does does you know does the gardening need to be kept up the answer that is probably yes okay obviously this is general advice I'm not saying any in any specific case but you

[14:05] know do you want a house um with the Landscaping overgrown that that is saying to the world nobody lives here right it's it makes a property Rife for um you know all kinds of potential problems including someone moving into the house and living there even though they're not entitled to Okay so um if there's investment property it has to be managed now if the owner was managing the property himself and now he's dead you know who's going to collect the rents who's going to make sure that tenant maintenance requests

[14:42] are taken care of who's going to make sure the bills get paid so the executor may do that but the executor may have no uh experience managing property and so the executor may need to hire a property manager okay or at least a professional fiduciary to make sure that those investment properties are properly taken care of while the probate process goes goes on okay now that that's you know tangible property and by the way let's say there's um uh there there's valuable art in the

[15:17] home but now the home is no longer occupied is it safe to keep the artwork in the home or should it be removed from the home and stored somewhere where not only is it secure from being stolen but also it's in a climate-controlled environment so that the um you know I'm thinking when I say artwork I'm thinking paintings so that the paintings do not deteriorate right maybe if they're left in the home I mean are you gonna you know keep the home air conditioned to the proper temperature in order to protect the artwork and maybe

[15:54] the answer is yes and that may be fine but then is is the home um also secure if nobody's there okay it may make more sense to remove the artwork and store it in order to make sure that it's it's safeguarded um by the way let's say there was a wine collection there okay okay um you know wine has to be kept under proper conditions so again are you going to keep you know are you going to keep that up you know is there a backup system let's say the power goes out and it's a it's very hot like it has been

[16:30] here you know in the United States for the last few weeks right and all of a sudden you've got wine stored in a house where it's you know 90 degrees if there's any kind of valuable wine there if the the value may have been destroyed so all of these things uh need need to be looked at okay now safeguarding the um non-tangible assets is important as well okay and and safeguarding them may involve let's say that there's a CD that's um that's become not due um that that's

[17:06] the term of the CD is up okay so now what's going to happen to that money okay is it gonna uh is the CD going to be renewed is it going to be put into a money market account so all of that needs to be done again to make sure that the value of the assets is maintained as well as possible okay now merely because the assets drop in value does not mean that the executor has done anything wrong if the if there's uh stocks and bonds in the estate okay they're going their value is going to fluctuate that's

[17:41] just part of the market so there's it's you know executors are not expected to work miracles and and somehow magically um keep the estate from feeling the effects of of the volatility of the stock market however proper sips do need to be taken in order to safeguard not only physical assets from being stolen or damaged something like that but even non-tangible assets as as as prudently as possible okay so identify and Gathering assets that's the next thing executors need to know next

[18:19] executors need to settle debts okay now I said I mentioned this in the beginning and and and and again this this can be complicated so first of all any creditors of the estate need to be notified that their former debtor is I say former debtor their debtor is now deceased and is now a former debtor okay so they're they're entitled to notification okay now notice I say settle debts address all debts I don't

[18:55] say hey debts okay it isn't necessarily the case that every debt is payable by the estate that's something that has to be looked at okay the person dying could terminate the ability of a debtor to collect I'm sorry a creditor to collect a debt okay for example if there was a verbal agreement between a creditor and a debtor okay between the Creditor and the

[19:31] decedent that the decedent owed the creditors some money once the debtor dies you all you may have is the word of the Creditor that the money is owed that may not give you as an executor the authority to pay that debt and in fact if you paid it you may be um um wrongly defraying the value of the estate and The Heirs could potentially come after the executor and say how could you pay this debt where is your justification that it was owed well I seemed like an

[20:06] honest guy I thought I would pay him well that may not be good enough so in the case of a verbal debt like that you know it's something you may and this is something your lawyer would advise you about it may be something that the court would need to approve Okay so for example the Creditor may have a memorandum that you know memorialize the debt okay and that may need to be submitted to the court since it's not an actual loan agreement okay and if the court says yes pay it okay so now now no

[20:43] problem you can pay it okay so creditors need to be notified all debts need to be addressed and when I say address what I mean is they need to be dealt with in some fashion you you the executor doesn't want to have close the estate meaning wrap up the probate process unless all the debts have been addressed either they've been paid or they've been adjudicated something not to be paid and so then the errors don't have to worry about some kind of liability following them after they've received the distribution of the assets

[21:20] okay now in some cases a settlement need to may need to be negotiated okay let's say for example that the debts exceed the value of the assets in the estate thereby leaving the not only leaving The Heirs with nothing but there's not even enough to settle all of the debts okay so there may need to be some negotiations to make sure that as many of the of the creditors get paid as possible they're you know it may at the the estate in other words may effectively be bankrupt okay and that's

[21:57] a very complex situation it will take a lot of um advice from a lawyer and an accountant minimally there may be more than one lawyer necessary okay and so again the the we want to think about settling the debts addressing them appropriately not necessarily paying them that all has to be figured out okay so that's that's the third thing an Executor needs to know all right fourth is the executor needs to manage the estate okay now I've I've

[22:34] talked about this a little bit when I talked about assets and and I mentioned they need to preserve the asset value of the estate okay managing the the estate means making financial decisions okay now that goes beyond by the way just the day-to-day um decisions that need to be made let me give you an example let's say that there's an estate comprised of a home and a brokerage account with Securities

[23:10] in it stocks bonds maybe some mutual funds or whatever okay and let's say that the what the out when when the decedent died there were some large medical bills to be paid okay let me put some numbers to this let's say the house is worth five hundred thousand dollars and let's say the um stock the The Brokerage portfolio is worth 500 000 okay and let's say further that there's maybe about fifty thousand dollars in cash in

[23:45] the estate okay so the whole estate is worth about a million fifty thousand dollars and let's say there's two hundred thousand dollars in medical bills okay that need to be paid um by the estate okay well it would be reasonable I suppose to say well I'm gonna you know me the executor I'm gonna use the fifty thousand dollars in cash to you know pay part of the debt okay now you got another hundred and fifty thousand dollars to pay what are you going to pay it with are you going to pay it with money from

[24:20] let's say the sale of the house are you going to pay it with money from some of the stocks and bonds being sold well you probably you would you're thinking well I'll just sell some of the stocks and bonds they're more liquid it's easier to do that and hey I'll you know I'll just sell 150 000 of those pay the debt it's a it's a you know it's a justifiable debt let's say and and dosfidania okay let me add a little twist to that let's say there's two heirs to the estate and the will says one air gets the house and the other air gets the stocks and bonds

[24:55] do you see something happening here the person getting the house is going to say by all means sell 150 000 of the stocks and bonds because it doesn't affect me and the person getting the stocks and bonds the air getting the stocks and bonds is going to say wait you can't sell the stocks and bonds how come I get short shrift here I'm gonna pay for all the debts that's not fair right so what are you gonna do and by the way if you sell the house you're not only will will you know let's say you

[25:32] decide oh okay then I'll sell the house and we'll split it 50 50 from the house for the proceeds of the house and from the brokerage account except for now that you've sold the house that asset no longer exists and that error may get zero you see the problems here so this is why as an the executor is going to need to make financial decisions and they can get complex pretty quickly right this is also why an Executor wants to have advisors to help understand the context in which decisions need to be

[26:07] made and and think about what will happen if certain decisions get made okay so that this managing the estate can be the most difficult part especially if there's competing interests Among The Heirs um and and by the way that example I just gave you that was a real life example okay and by the way this was going on while the person was still alive they were already fighting over it she had she had expenses she had to meet

[26:42] to live and because of how the will was set up okay it meant some asset had to be sold and and the errors were already arguing over which assets should be sold because you know they wanted to get the most out of the estate and their mother was still alive okay slap slap slap the face of those errors okay now sorry my nose is very itchy today I don't know why all right another issue in the management of the estate is tax returns are going to have to be filed okay even if the estate is exempt

[27:20] from estate taxes it is not exempt from filing a final tax return on behalf of the decedent okay now there may be more than one return that needs to be filed first of all there may be a federal a final federal and state tax return to be filed right here in California we have a state income tax so both would have to be done okay some states don't have a state income tax so maybe you only have to file a final federal tax return so that varies from state to state but there may need to be an estate tax return filed as

[27:56] well again one more reason why uh the executor needs to have competent advisors to uh keep track of what needs to be done okay and um the executor will probably be the one signing that tax return so he better understand what it says because he's the one that's going to be responsible for it if there's an audit or any sort of follow-on liability as a result okay finally the managing the estate includes Distributing remaining assets

[28:33] presumably according to the decedent's wishes okay now if there's a will hopefully that will makes clear who gets which assets or you know maybe make maybe better and this this will depend on your situation talk to your advisors but maybe you know what you know it's there's not specific assets that go to errors just a percentage that goes to to The Heirs okay um so you know the the executor then is responsible for making sure those transfer of assets take place all right

[29:10] and I think we've got one more yes okay finally would it the what executors need to know is they must keep accurate records okay now this needs to be uh interpreted broadly so not just details of financial matters and distributions but also Communications okay so if there's uh emails if there's letters maybe between

[29:45] um uh various institutions or maybe uh other people who are dealing with this state maybe there's correspondence with a broker who's selling a house okay all of that needs to be retained now by the way it doesn't necessarily have to be retained on paper it can be retained electronically okay but all of that information needs to be retained for a number of reasons number one the court may want to see it okay so if if the executor has authorized a particular transaction to take place and there's a question about the propriety of that

[30:21] transaction the court is most likely going to want to see all paperwork associated with it whether that's contracts agreements you know emails letters whatever the court may want to see that okay and so all of that needs to be retained all right if there's a dispute with The Heirs it you know the again the court will want to see records in order to understand what the executor decided to do and why okay

[30:57] um and so you know you want to retain um uh um Communications with your with your advisors as well so that you can say well look I you know I I ended up selling the house because uh we needed to be able to pay for all these debts um I I checked with you know real estate agents I checked with a contractor here's all the documentation the house needed a lot of work in order for it to be viable for sale um and and and uh so you know given all

[31:32] of that I decided to sell the house okay and and and and it may be a perfectly legitimate decision that the court is going to want to see how did you to arrive at that decision in deciding whether it's you know proper or not okay so you want to keep detailed uh accurate records you also need to document all expenses okay so if you have to if the executor has to travel in order to settle the estate all of those travel expenses need to be documented okay if

[32:08] the if he you know is paying for legal advice accounting advice whatever again all those expense records need to be kept and again the Probate Court may need to approve do a final accounting on the estate and approve all of these all those expenses and so the court can rightly ask for documentation proving that the expenses were incurred okay now in some cases an Executor may get paid okay although usually that's not the case but sometimes it will be and if

[32:45] that's the case the executor needs to keep very detailed records as to why he was paid what he was paid okay to just be taking lump sums um not not not a good practice all right so that I think is the last Point yep if you have any questions or you need any help here's a few ways to contact me all of this will be listed in the show notes after the show posts to uh my YouTube our YouTube channel so feel free to contact me or drop a comment or question into the uh chat or or into this any of

[33:23] our social media okay and here's the legal stuff of course and let's go ahead and stop the sharing because I think we're yeah we're we're just about on time here today so that is what I have for you today on trust and estate weekly uh I hope I hope you it was informative I hope uh it helps you figure out better what what needs to be done and by the way you know maybe someone is contemplating um having you be the executor of their will so now you can understand what that may entail and you can give them a more

[33:59] um uh educated answers to whether it's a duty that you want to fulfill okay all right so um that's the show for today tomorrow uh my show is busy uh business lessons from the military it starts at 11 A.M Pacific time we'll be continuing our discussion of Marine Corps War fighting Doctrine translated into business stock business uh lessons and so I invite you to join me then and then on Wednesday um for people making money at 12 30 p.m

[34:36] Pacific time my guest will be Jason Young he's going to be talking about his new book and let me get you the title of that book uh real quickly uh it's called how to build long-term energy health and success as a Ministry leader so you'll be saying well wait that's only for ministers no I don't think it's only for ministers I think in a way anyone in business today is leading a Ministry okay we have our

[35:11] our co-workers we have our customers and clients and we are working to serve them in the sense of helping them improve their lives okay whether it were a product or a service business doesn't matter so much today we better be doing something that's improving our customers or clients lives otherwise we're probably not going to stay in business and so I think many if not all of the lessons that Jason highlights in his book will be applicable to your business

[35:47] you know even a for-profit business if we think of ministry as a not-for-profit business although there have been some Infinite infamous examples of ministers I think making big big profits but but setting that sort of you know scandalous stuff aside whether you're in a for-profit or a non-profit I think you will um you will really benefit from hearing Jason's ideas and insights into how you approach uh your business and then next week at this time will be the next edition of trust and Estates weekly and

[36:23] I welcome you um to join me 10 a.m every Monday when we talk about this most important topic so thanks very much for joining me again I hope you enjoyed the show and look forward to hearing your comments and questions and I look forward to seeing you tomorrow signing off Marie darling you are my bell all the best folks