When an individual dies without a surviving spouse, siblings, parents, descendants, or named beneficiaries, their estate still needs to be distributed. In cases when this happens in North Carolina, how will the estate be settled?Continue Reading...
As you prepare your Will and estate plan, you will choose beneficiaries to receive your financial and personal assets. What happens if a beneficiary dies before you do? If you pass away before updating your Will to reflect the beneficiary’s death, how will your assets be divided?Continue Reading...
Neglecting to update beneficiaries, or failing to name them, may leave life insurance and retirement accounts to unintended recipients, create probate expenses, and cause tax problems. Having a Will does not avoid these issues. The best prevention is having updated beneficiary designations.Continue Reading...
North Carolina estate planning discussions usually put an individual’s assets under the microscope. What trusts would avoid taxes best? How much should be designated for charitable contributions? Are my advance directives up-to-date? Most people are concerned about preserving inheritances for beneficiaries instead of understanding how inherited debt may affect their loved ones.Continue Reading...
Everyone wants to save money, but choosing to cut corners on estate planning in North Carolina may end up costing individuals more than they ever expected. The cost of do-it-yourself estate planning may seem attractive at first, however Consumer Reports released a study that shows most of the DIY will programs have unintended consequences.Continue Reading...
A new study reveals more employers will offer Roth 401(k)s to their employees in 2013. About a third of all employers surveyed by Aon, a human resource services provider, have plans to add a Roth contribution option. Since there are no income restrictions for Roth 401(k)s, the rising trend will catch the eye of many employees.Continue Reading...
The Supreme Court's recent affirmation of the Affordable Car Act and the associated new taxes, including the 3.8% investment income surtax has many affluent taxpayers and their advisors concerned. However, individual investors aren't the only ones who will be affected by this new law, as the surtax applies to trusts and estates as well.
The surtax goes into effect on January 1, 2013 and will apply to trust and estate net investment income in excess of about $12,000 that isn't paid out to heirs or beneficiaries. Net investment income includes interest, dividends, capital gains, annuities, rents, royalties, and passive activity income, but not distributions from IRA's and other qualified retirement plans. Trusts or estates that pay out 100% of income distributions will not owe a surtax, but the heirs or beneficiaries receiving the distribution will have to report the income, which will be used in their own individual surtax determinations.
For eligible estates and electing trusts, selecting the correct year end could considerably reduce the months in which surtax is owed on the estate. It may make sense to choose a December 31, 2012 year end where possible.
It's not too early for trustees, executors and their tax advisors to start considering implication of this new tax.
I came across a recent article in the Yahoo Finance Blog, Half of Americans With Kids Set to Die Without a Will. If you are a North Carolina resident, what happens to your estate if you don't have a will (you die intestate, in legal terms)? Here's a link to the NC law on Intestate Succession: N.C.G.S. Section 29-13 et. seq.
If you have a spouse and children, you might be surprised to learn that your spouse will not necessarily get your entire estate. This can can be especially problematic if you die owning real estate in your sole name and have minor children. Guardianships would have to be established and authority granted from the court before the property would be able to be sold. There are also a whole host of other potential problems that can be avoiding by having a will or living trust.
Bad things happen to the families of good people who die without a will. Don't let this happen to you.
In a recent federal District Court case, the co-executors of a decedent's estate were held to be personally liable for the decedents unpaid income taxes under the federal priority statute because they distributed assets of the estate, the distribution rendered the estate insolvent, and it took place after they had actual knowledge of the decedent's liability for unpaid taxes. U.S. v. David A. Tyler and Louis J. Ruch, (DC PA 03/13/2012) 109 AFTR 2d ¶2012-583.
This case should serve as a reminder that serving as executor is not a job to be taken lightly, and that one must take great care to follow the law ensure that one does not become personally liable to acts or omissions as executor. In my admittedly biased opinion, lay executors should always hire counsel to assist them - and follow counsel's advice. In doing so, they will often save the estate and themselves money in the long run, not to mention increased peace of mind.
I just came across this article, Closing Down the Estate, on SmartMoney.com. It gives a good overview of what an executor is responsible for from a tax perspective, but is by no means exhaustive. Since Executors can be personally liable for certain tax penalties, they should make sure to engage an experienced tax attorney or CPA to ensure that everything is done timely and correctly.
Effective January 1, 2012, North Carolina has added a couple of new court costs in estate matters:
- Will Caveats (will contests) - a $200 filing fee.
- Reopened Estates - a filing fee of 40 cents per $100 of property in the reopened estate. The maximum cumulative fee for estates is $6,000.
These are on top of increased filing fees for estates that took effect last year. As fees to continue to rise, avoiding probate with living trusts and other planning will save even more money.
North Carolina legal assistants working with estate lawyers may be interested in a day-long seminar, Estate Planning and Probate Practice for Paralegals, to be held in Chapel Hill on January 25, 2012. I will be presenting the portion on Assisting with Guardianships.
In the 2011-2012 Session, the North Carolina General Assembly passed several laws affecting estate planning, trusts and probate:
- S.L. 2011-5 and S.L. 330- The reference to the Internal Revenue Code in G.S. 105-228.90(b)(1b) is changed from May 1, 2010 to January 1, 2011. This puts NC in sync with the federal government with regard to the estate tax ($5 million exemption). For 2010 NC had no estate tax.
- S.L. 2011-339 - 1) Contains minor changes to the notice provision for trustee compensation under G.S. 32-55; 2) Clarification that certain marital trusts are exempt from the claims of creditors of the surviving spouse under G.S. 36C-5-505; 3) An addition to G.S. 36C-7-704 expressly states that a successor trustee is vested with the title to property of a former trustee; 4)Clarifies powers of a trustee to wind up administration of a trust under G.S. 36C-8-816; 5) Establishes a new category of corporate fiduciary, a "trust institution", with less restrictions than a bank. Effective October 1, 2011, and applies to all trusts created before, on or after that date.
- S.L. 2011-344 - Numerous but mostly minor changes or clarifications to right to appeal a Clerk's order, jurisdiction, probate in solemn form, venue, renunciation of right to serve as executor or administrator, revocation of letters, resignation of personal representative, collectors, small estates, summary administration, intestate succession, allowances, will requirements, caveats, will construction, and much more. The changes are effective January 1, 2012, and apply to estates of decedents dying on or after that date.
Effective July 1, 2011, the fee to open an estate proceeding in North Carolina is now $120. This includes Trusts under Wills and Affidavits for Collection of Personal Property. Special Proceedings are also now $120. Click here for the Estates Court Costs Chart. There is also a new "Motion" fee that applies when motion is filed and a hearing on the motion is required. It appears that Petitions for Approval of Commissions and Attorneys Fees, which generally do not require a hearing, would not carry a $20 fee.
Motion Fees in Estate Proceedings. G.S. 7A-307(a)(4):
In addition to exemption for motions under G.S. 7A-308, listed above, the motion fee may be assessed in estates proceedings only when the motion requires a notice of hearing. S.L. 2011-145, § 31.23.(d), as amended by House Bill 22, § 62.
Any motion filed in an estate matter for which the relief requested requires a hearing will require a notice of hearing, so the motion fee must be assessed at the time of filing whenever the relief requested would require a hearing. The requirement of a notice of hearing should not be interpreted to mean that only motions that result in an actual hearing require the $20.00 fee. The fee should be assessed whenever the relief requested would require a hearing, even if no hearing is actually held. Only motions that do not require a hearing (e.g., summary revocation of letters of a personal representative under G.S. 28A-9-2(a)) are exempt from the motion fee under the “notice of hearing” requirement.
More reasons to avoid probate by use of living trusts!
The IRS has issued interim guidance on the treatment under Code Section 67 of investment advisory costs and other expenses subject to the 2-percent floor under Section 67(a). Notice 2011-37.
In particular, the notice provides that, for taxable years beginning before the date that final regulations under § 1.67-4 of the Regulations are published in the Federal Register, nongrantor trusts and estates will not be required to “unbundle” a fiduciary fee into portions consisting of costs that are fully deductible and costs that are subject to the 2-percent floor.
The IRS is extending the filing deadline of Form 8939, Allocation of Increase in Basis of Property Acquired from a Decedent, which must be submitted to determine the new basis of assets in 2010 estates that opt out of the federal estate tax.
The form will no longer be due on April 18, and the IRS will issue more guidance at a future date and set the new deadline at “a reasonable period of time” after that, according to a statement issued on March 31, 2011.
The estate tax was eliminated in 2010 due to a phase-out approved in 2001, but under TRA 2010 enacted in December, the tax was reinstated at a top rate of 35% with a $5 million threshold for individuals and $10 million for married couples.
Estates have an alternative option to allocate up to $1.3 million in basis to estate assets, with an additional $3 million for assets passing to a surviving spouse. To the extent the increased basis does not bring the basis to fair market value, the heirs would then pay capital gains taxes on inherited assets they sell.
The extension will be of help to executors of estates opting to for carryover basis, because determining the cost basis of property, including stock held for decades, or a family business, may require extensive research.
Modern day movies and television commercials (including a recent one by DirecTV) sometimes feature a lawyer reading the will of a deceased testator to his family. Occasionally I even get questions about the ceremony. However, it is the product of a bygone era, and as far as I am aware, never happens anymore.
I have been practicing for 23 years and have not once held a "reading of the will." It was a necessity in the days before widespread literacy and the availability of photocopies, but now we can simply mail (or email) a copy of the will to the beneficiaries. These days, for many decedents the will is not even the primary dispositive instrument - it's a living trust. One never hears about a "reading of the trust."
So, while scenes of the stuffy old lawyer reading the will can be dramatic or comedic, they are certainly not an accurate representation of practice over the last few decades.
Today I was alerted to the existence of a draft of the IRS from that will be required to be filed for estates of decedents dying in 2010 with estates in excess of $1.3 million. IRS Form 8939 - Allocation of Increase in Basis for Property Received from a Decedent. The due date is April 15, 2011.
This form is necessitated by the Modified Carryover Basis rules that replaced the estate tax for 2010. Each decedent's estate gets $1.3 million worth of basis to allocate to appreciated assets, with an additional $3 million for assets going to a surviving spouse. IRC Section 1022. The allocated basis will effectively eliminate capital gains tax liability for assets sold soon after death.
If you're asked to serve as the executor of an estate, think carefully about the decision before accepting the position. Acting as an executor or administrator of an estate can involve a great deal of work, depending on assets and the complexity of the estate.
| Q. Who Can Be
A. It depends on state law, but you generally must be over the age of 18 or 21. In most states, to be an executor a person cannot have been convicted of a felony or be considered "unsuitable" by the court.
For example, an estate with a large investment portfolio, property in more than one state, and a major stake in a business means far more responsibility than a modest estate.
Many people agree to be named as an executor for a relative or friend - and then find they're left with a task that's more difficult and overwhelming than they expected. What's more, executors are bound by law to observe a strict standard of care in fulfilling their duties. You can be held legally liable for negligent handling of the estate.
Use the list of typical executors' responsibilities below to make an informed decision about whether to agree to be named executor. Here are some possible duties that an executor must fulfill:
Inform various people of the death. This includes family members, employers, business partners, the attorney and accountant.
Cancel accounts. This includes the deceased person's credit cards, utilities, banks and other creditors.
Have the will probated. Usually, this means having a lawyer petition the court to probate (or approve) the will. Once the will has been probated, the executor has the power to administer the estate - in other words, to perform the rest of the duties on this list.
"Marshal" the assets. This means finding all of the deceased person's assets, which may not be easy. (Imagine trying to quickly locate every asset you own right now, such as car registrations, stock certificates, account statements, deeds, pension benefits, mortgage
papers, and IRA papers. Now imagine trying to do this for someone else.)
Advice: To ensure that your own assets will be more easily located after death, it's a good idea to prepare a post-mortem letter. This is a document you can prepare yourself to tell executors and heirs where everything is located to carry out your instructions.
Be sure each asset is valued. Assets need to be valued both for estate tax purposes and to provide heirs with a tax basis. (Under the tax law, the tax basis of an asset in an heir's hands is generally the "date of death value.") Some assets, such as business interests, require an appraisal.
File any tax returns. Depending on the size of the estate, tax returns that need to be filed might include federal and state estate tax returns, the decedent's final income tax return, a final gift tax return, and an income tax return for the estate.
Make an accounting of the assets. You'll need a professional for this. In some cases, you may need to sell some of the assets.
Handle the debts. After determining what the estate owes, an executor pays the debts out of an estate bank account.
Distribute the estate's assets in accordance with the deceased person's wishes. If substantial time elapses before the assets are distributed, you have to manage the assets.
These are just some of the duties an executor may have to perform. Although it is an honor to be asked by a friend or relative to serve as an estate executor, don't hesitate to decline if you aren't sure you can handle the task. Perhaps as an alternative, you could serve as a co-executor with a financial professional or institution that has the expertise needed to handle some of the responsibilities.This post is from an article in my October 5, 2010 eNewsletter.
One of the most challenging things for many executors is trying to locate and organize the decedent's financial information, such as insurance policies, and bank and investment statements. Faced with that problem after their father died in a car accident, Jarred and Adam Mait created knowtification.com.
Once person's name, date of birth, date of death, social security number, and address are entered, the service automatically generates a letter that is sent to 200 (or 400, if you choose the premium plan) top financial institutions requesting information regarding any accounts held by the decedent. Credit bureaus are also notified.
I have no personal experience with the site, but it is a great idea, and should save executors time and money.
Given the new basis reporting requirement for the estate of decedents dying in 2010, these new FAQ from the IRS are welcome and contain very important details, including (emphasis added):
Are there any filing requirements for a decedent who died in 2010?
Yes. Current legislation requires the executor of an estate to file the following tax returns:
- The final income tax return (Form 1040) for the decedent;
- Fiduciary income tax returns (Form 1041) for the estate during administration; and
- A return allocating the allowable basis adjustment to property acquired from a decedent, if the fair market value of the property exceeds $1.3 million or if the decedent acquired property by gift, except in certain cases.
- No later than 30 days after the filing of the return allocating the allowable basis adjustment, a written statement to each recipient of property that contains the information on the return.
For more information, you should consult your tax adviser.
What is the due date for the tax return allocating the allowable basis adjustment?
The form allocating the allowable basis adjustment must be submitted by the executor with the decedent’s final income tax return. For decedents dying in 2010, the due date is Friday, April 15, 2011.
What if the assets acquired from the decedent have a fair market value of less than $1.3 million? Does the executor need to file a return allocating the basis adjustment?
Maybe. The return allocating the basis adjustment is required only if the property acquired from the decedent is in excess of $1.3 million or if the decedent acquired property by gift, except in the case of certain gifts from decedent’s spouse, during the 3-year period ending on the date of the decedent’s death and the donor was otherwise required to file a return to report the gift.
For more information, you should consult your tax adviser.
What is the form number for the return used to allocate the allowable basis adjustment and where can I obtain it?
A form to allocate the allowable basis adjustment due by the executor is currently under construction, and a number has not yet been assigned.
When the return form is completed, it will be posted at the IRS Web site.
Probate and Estate Administration Matters Are Generally Handled in the State Courts – But Not Always, As One NC Executor Recently Found Out
Probate – the process of filing a deceased person’s will and administering the estate – is generally considered a matter exclusively for state courts. Federal courts are limited in the types of actions they can hear, and the “probate exception” generally excludes probate matters from the federal courts. The Supreme Court held in one case that the federal courts have no authority to “interfere with the probate proceedings or assume general jurisdiction of the probate or control of the property in the custody of the state court.” Markham v. Allen, 326 U.S. 490, 494 (1946). However, the probate exception does not necessarily exclude all probate-related matters from federal court, as one Executor of a North Carolina estate recently discovered.
Effective July 1, 2010, the fee for opening a probate proceeding in North Carolina increased by $1.00 to $89.00. While one dollar is not much of an increase, it is representative of the trend over the last few years to raise court costs. It will only get worse, making living trusts to avoid probate that much more attractive.
In North Carolina it is not uncommon for persons to handle administration of a decedent's estate without hiring a lawyer or an accountant. Because of the complexity of the law and the likelihood that certain requirements or opportunities will be overlooked, I certainly don't recommend going it alone. This post is not intended to be a do-it-yourself guide, but simply an overview of the basic process. Complying with income tax requirements is the most complex part of the majority of estates.
A deceased individual's tax year ends as of the date of death. Thus, all of the items of income and deduction prior to that date are reported on Form 1040. The tax year for the estate begins on the date of death, and generally ends on the last day of the month 11 months later. A separate tax id number for the estate is necessary and must be obtained from the IRS. The tax id number is provided to all financial institutions in which the decedent owned an account for income reporting purposes, and is used for the estate checking account.Continue Reading...
The following is a guest post by Chris Birk of SuretyBonds.com, which also publishes the Surety Bond Insider:
If your list of New Year’s resolutions seems thin, look no further than your estate plan — and make sure you’ve included a waiver of bond for the executor.
Probate bonds can prove a costly headache. Without a will that explicitly waives the need for a probate bond, courts have no choice but to mandate their purchase unless the heirs formally agree that a bond is unnecessary. And even then the court may still deem a probate bond necessary to ensure the estate and its assets are protected and debts are paid.
The absence of a bond waiver ensures that the executor is likely to spend time and money negotiating a financial and legal hurdle in a process that already has its fair share.
Surety companies will also examine the financial and credit history of the executor before issuing a bond. Make no mistake — there’s an underwriting process for these bonds, just like any other risk-management mechanism. There are cases where an executor has failed to qualify for a bond, triggering a new series of legal maneuvers involving the surety company.
The cost of a probate bond depends on the value of the estate and its unsecured debts. For estates valued at more than $1 million, bond premiums could easily run about $2,000 per year depending upon the location.
While the estate can pay for bond costs, think of it more as a reimbursement — you can’t access the estate funds until probate is complete. And sureties won’t issue bonds with an I.O.U. In addition to upfront costs, executors (and administrators) are on the hook for renewals and premiums each year.
These costs and potential aggravations can slow the probate process. They’re also a recipe for confusion and, in many instances, unnecessary expense.
With the new year underway, now is a great time to revisit your estate plan and thoughtfully consider including a bond waiver.
The Elective Share is the value of property a surviving spouse is entitled to get from a deceased spouse. In the absence of a valid prenuptial or postnuptial agreement waiving such rights, when the deceased spouse leaves less than the elective share amount to the survivor, he or she can enforce the elective share.
North Carolina revised its elective share law effective for decedents dying on or after October 1, 2009. The revisions include expended definitions of what property is included in the determination of property subject to the elective share and provisions for valuation of the property.
SL 2009-368 - NCGS Chapter 30, Article 1A
Practically every day, I discuss with clients the pros and cons of revocable living trusts. In my opinion, the positives generally far outweigh the negatives, but living trusts don't make sense for everyone. There have been innumerable articles and blog postings about the advantages of using a living trust for estate planning, but I thought I'd approach the topic from a different angle - why might you not want to use a living trust:
- You want the court to dictate how your estate is handled - all those rules have to be there for a good reason, right?
- You favor supporting the government, so you like the idea of your estate paying thousands of dollars in court fees.
- You believe everyone's testamentary dispositions and assets should be public record, including your own.
- You want your executor to experience the joy to traveling to another state to handle probate in the location in which you own your timeshare, land, vacation place, etc.
- You know your executor will enjoy filling out and signing lots of forms; after all he or she has nothing better to do.
- You know your family will not mind waiting for all the minute details of probate to be completed before the estate is closed and the assets distributed.
- You are glad that the court clerks are kept busy, so a several month delay in approving a final account is no big deal.
- And finally, you favor supporting lawyers, so you don't mind your estate paying thousands of dollars in attorneys fees for ensuring that the court requirements of probate are met.
If even one of these statements describes you, then maybe you aren't the right candidate for a living trust. ;-)
I often have clients ask about "getting a deed" when they inherit real property. My response is usually "you don't need one." In North Carolina, in most cases, no deed is necessary to transfer and evidence ownership of inherited real estate.
North Carolina law provides that "[t]he title to real property of a decedent is vested in his heirs as of the time of his death; but the title to real property of a decedent devised under a valid probated will becomes vested in the devisees and shall relate back to the decedent's death, subject to the provisions of G.S. 31-39." North Carolina General Statutes Section 28A-15-2(b).
What this means is that (1) if someone dies without a will, his or her next of kin (as determined under NC law) immediately own the property; and (2) if someone does will a valid will, the beneficiaries of the property under the will immediately own the property. In both cases, the administrator or executor of the estate can sell the property only if necessary to pay debts and expenses. An exception is if the property is devised to the executor of the will with instructions to sell the property.
Other than a sale necessary to pay debts and expenses, once the real property is vested in the heirs or beneficiaries, it can only be sold if all of the new owners and their spouses agree. If the parties cannot agree on the sale, or if one of the owners or spouses is unavailable, a court proceeding for partition or sale in lieu of partition must be filed. This is a long and expensive process. If a minor child becomes the owner of real property, it also cannot be sold without a court order.
Since deeds are not necessary under North Carolina law, the evidence of ownership for inherited real property is (1) the death certificate and (2) the probate file (with the will, if any). If the real property is located in a county other than the county of the decedent's residence, these documents must also be filed in the county in which the real property is located.
Because of the complications involved under this system, often the best way to transfer real estate is with a living trust. A living trust generally gives the trustee the power to sell and avoids many of the problems inherent under NC law. This is particularly true for residents of other states who own property in North Carolina.
Effective today, along with 1% increase the sales tax, the filing fee for probate cases has increased to $88 (from $61). The .40/100 fee applied to estate assets (maximum of $6,000) does not increase this year - but watch for future increases as the state continues to struggle to increase revenues.
If you use a living trust to avoid probate your heirs won't get stuck with these fees.
While I generally counsel my clients to avoid probate by the use of living trusts or other methods, one useful aspect of probate is the provision for publishing a Notice to Creditors. Publishing such a notice in the paper and otherwise following the law allows a decedent's creditors' claims to be extinguished after about three months.
In cases where a decedent has no probate property, but his or her heirs are worried about potential creditors, we generally advise opening a probate proceeding to publish the Notice to Creditors, even though it is otherwise unnecessary.
Our friends in the North Carolina General Assembly have now taken care of this problem, and passed a law providing for a limited proceeding for the sole purpose of publishing the Notice to Creditors. With a $30 fee, and only limited accounting required as to payment of the claims, this will provide an easier and less expensive way to deal with a decedent's creditors.
Beginning October 1, 2009, when a lawsuit is filed to contest a Will (Caveat), the probate administration will no longer be fully suspended until the caveat is resolved. Only certain actions, such as distributions to beneficiaries and payment of personal represenative's commissions, will be prohibited.
Session Law 2009-131, amending N.C.G.S. Section 31-36.
The "Years Allowance" for spouses is intended to provide support for a surviving spouse during the year after the death of the deceased spouse, and has priority over creditors claims and other beneficiaries.
The allowance has been $10,000 for many years, which, of course, is a pitifully small amount these days. However, effective January 1, 2010, the amount will increase to $20,000.
Use of the Year's Allowance is also helpful in avoiding the cost and time of a full probate proceeding in some cases.
Session Law 2009-183, amended North Carolina General Statutes Sections 30-15, 30-26 and 30-29.
Effective October 1, 2009 the threshold for small estate proceedings (often called Affidavit for/of Collection) under North Carolina General Statutes Section 28A-25-1 will increase to $20,000 for estates where there is no surviving spouse or he or she is not the sole heir, and $30,000 where the surviving spouse is the sole heir.
Using this procedure can avoid the cost and time involved in a full probate proceeding.
On June 1, 2009, Governor Perdue signed into law Session Law 2009-48, which, effective October 1, 2009, institutes substantial changes to to statutes dealing with renunciation of interests in property. In general, the effect of a valid renunciation of property is that the person renouncing is treated as having predeceased the transferor. For example, a child that renounces an inheritance from a parent would be treated under the parent's will as having died before the parent.
The revisions include:
- Allowing a parent of a minor child to renounce a interest in property that would have passed to the child as a result of the parent's renunciation.
- Expanding the rights of fiduciaries (trustees, personal representatives, attorneys-in-fact) to renounce fiduciary powers and provides a method to have the Clerk of Superior Court approve the renunciation.
- Adding a section regarding spelling out the requirements of delivery of renunciation of different property interests or powers to third persons.
- Adding detail on the effect of renunciation for different types of property.
- Providing that a valid tax qualified disclaimer under federal tax law is effective as a renunciation under North Carolina law.
- Adding renunciation powers to the NC Short Form Power of Attorney.
The North Carolina Legislature is considering cuts of up to 24% in salaries of judicial system employees, which include Clerks of Court and their staff. Obviously, this may lead to staff shortages and/or staff turnover, both of which may cause delays in processing probate documents, particularly Annual and Final Account. As it is now, at times I have had wait several months for the filings to be approved.
Janice Oldham, who has served as Chatham County's Clerk of Superior Court for more than 30 years, is retiring at the end of this month. Senior Resident Superior Court Judge Carl Fox has appointed Chatham native Sam Cooper to serve the remainder of Oldham's term, which expires on December 31, 2010. Cooper will then have to run for election if he wishes to keep the job.
Clerks of Court are responsible for, among other things, estate, trust and guardianship matters, serving as ex officio judges of probate. Legal training is not a requirement of the job, but the trend in recent years is for licensed attorneys to be appointed. The counties in which the most probate matters, Orange, Durham and Chatham, all now have lawyers serving as Clerks.
I recently had someone email me and ask if the North Carolina Estate Procedure Pamphlet, published by the North Carolina Administrative Office of the Courts, is accurate. It is generally correct, and provides a good, basic overview of estate administration requirements and procedures in North Carolina. However, it is out-dated, having been published in 2002. In addition, it does not go into depth about how to fully accomplish the many requirements of probate and deal with unusual issues, not to mention the estate and income tax aspects of probate. Furthermore, the Clerks of Court in each of our 100 counties may have different rules and intrepretations of the law. This pamphlet alone certainly does not provide enough guidance for a lay person to properly handle a probate proceeding. Given that executors and administrators can be held personally liable for mishandling an estate, even if not intentional, having an estate attorney on board is always a good idea. It may even save money in the long run, and will certainly save a lot of time and aggravation for the executor.
I recently received the following email, and then had a phone conversation with its author. This is a legitimate documentary, with filming to take place in Montreal over the course of the year. All expenses for the trip to Montreal will be paid. Feel free to contact me or Ms. Ouimet directly. Click "Continue Reading" for the "looking for" message referred to by Ms. Ouimet.
Dear Mr. Herman-Giddens,
I'm a researcher working on a documentary series about people's first-hand experiences with a family will. The project is being produced for a major US broadcaster.
I came across your blog and found your knowledge very inspiring. I was hoping you may have stories to share with me and perhaps help me get in touch with families having dealt with a difficult will story. We would also very much appreciate having you on board as our legal expert to help us make sense of all the legal complexities surrounding wills in your state.
Our series explores various, unexpected family issues surrounding wills. We would like to showcase the powerful, true-life stories of family wills, in an effort to create a deeper awareness of the difficult subjects of legal wrangling, conflict, grief and deep-seeded dynamics that can often arise when the will of a loved one is read.
We believe it will help others reach closure on their feelings concerning a past will, and help them make sense of their own experience with a will.
Please feel free to share the "looking for" text pasted below with your clients or on your blog if you wish and/or deem it acceptable.
Thank you, I look forward to hearing from you soon.
CMJ Productions -
The Will (working title) / a ten-part hour-long documentary series
No - in most cases. Mortgages generally contain "Due on Sale" clauses, which say that the lender can call the mortgage due upon transfer of property. However, federal law (12 USC § 1701j-3(d)) provides a number of exceptions (emphasis added):
(d) Exemption of specified transfers or dispositions
With respect to a real property loan secured by a lien on residential real
property containing less than five dwelling units, including a lien on the
stock allocated to a dwelling unit in a cooperative housing corporation, or
on a residential manufactured home, a lender may not exercise its option
pursuant to a due-on-sale clause upon—
(1) the creation of a lien or other encumbrance subordinate to the lender’s
security instrument which does not relate to a transfer of rights of
occupancy in the property;
(2) the creation of a purchase money security interest for household
(3) a transfer by devise, descent, or operation of law on the death of a
joint tenant or tenant by the entirety;
(4) the granting of a leasehold interest of three years or less not
containing an option to purchase;
(5) a transfer to a relative resulting from the death of a borrower;
(6) a transfer where the spouse or children of the borrower become an owner
of the property;
(7) a transfer resulting from a decree of a dissolution of marriage, legal
separation agreement, or from an incidental property settlement agreement,
by which the spouse of the borrower becomes an owner of the property;
(8) a transfer into an inter vivos trust in which the borrower is and
remains a beneficiary and which does not relate to a transfer of rights of
occupancy in the property; or
(9) any other transfer or disposition described in regulations prescribed by
the Federal Home Loan Bank Board.
This article is from one of our recent newsletters. Although it refers only to executors, most of the considerations also apply to trustees. North Carolina no longer requires that an executor be a resident of the state.
For those interested in receiving TrustCounsel's newsletter, visit our website to sign up.Continue Reading...
This is a complicated but potentially very worthwhile strategies to pursue in estate in which the decedent owned valuable depreciable real estate (e.g. office buildings, shopping centers, or multiple rental homes). Thanks to Bob Keebler, CPA for the following memo:
A unique opportunity many lawyers, CPAs and trustees miss during the estate administration process is to recommend cost segregation studies. Such studies may be applied on both a going forward basis and for the open income tax years prior to an individual’s death. A cost segregation study simply allows the owner of real property to reclassify segments of what would otherwise have been treated as 27.5 and 39 year life depreciable property as 5, 7, or 15 year property.Continue Reading...
When I started practicing 20 years ago, Clerks of Court generally required approval of attorneys fees paid in probate proceedings. This required the attorney to spend extra time preparing a Petition and Order for Approval of Attorneys Fees, which of course resulted in an increase in the total fees.
Several years ago the counties in which I primarily practice ended this requirement, which made probate somewhat easier and less expensive. After all, shouldn't the executor of an estate be in the best position to judge what is reasonable to pay an attorney for his or her services?
We were recently informed that Chatham County now requires approval of attorneys fees once again. This effectively increases the cost of probate in Chatham County by the several hundred dollars attorneys will bill for the preparation of the documents necessary to obtain the approval. In addition, it creates the potential for problems if fees are paid prior to approval and the Clerk then refuses to approve them.
Personally, I am going to charge larger initial retainer fees and amend my client agreement to state that the executor is responsible for payment of my fees even if not approved by the court.
Bottom line - this is yet another reason to avoid probate by using a living trust.
This change will be effective for extension requests for tax returns due on or after January 1, 2009, and applies to entities that file the following returns and forms that have a tax year ending on or after September 30, 2008:
• Form 1065, U.S. Return of Partnership Income
• Form 1041, U.S. Income Tax Return for Estates & Trusts
• Form 8804, Annual Return for Partnership Withholding Tax (Section 1446)
The final and temporary regulations finalize the simplified procedures for obtaining an automatic extension of time to file returns, doing away with the requirements for a signature and an explanation of the need for an extension of time to file. They also complete the elimination of Form 2688, Application for Additional Extension of Time to File U.S. Individual Income Tax Return, granting individual taxpayers an automatic six-month extension with their filing of Form 4868, Application for Automatic Extension of Time to File a U.S. Individual Income Tax Return.
Thanks to Bob Keebler, CPA for this news.
Barbee v. Johnson et al., No. COA07-510, 1008 N.C. App. LEXIS 887 (May 6, 2008)
They other day a client came in and said that he had heard that probate in North Carolina was a "breeze." Wrong! While probate here is less expensive than in some states, I still counsel my clients to avoid it in most cases. Here are 10 Reasons to Avoid Probate in North Carolina:
- Court fees can exceed $6,000.
- Accountings must be filed reporting every penny coming into and going out of the estate.
- Documentation of bank accounts and expenditures is required.
- A formal inventory of assets is required.
- Attorneys fees generally far exceed fees in similar non-probate estates.
- All filings are in the public record.
- Notices to creditors must be published in the local newspaper.
- Delay due to court rules and busy Clerks' offices.
- Bond may be required if not waived in the Will.
- Stress induced by court deadlines and requirements.
My office handles dozens of probate matters every year, so we have first hand experience with all types of estates. I recommend avoiding probate to save time, money and aggravation. Generally, a Living Trust is the best way to avoid probate, but there are other methods as well. An experienced estate planning attorney to help you make the right decision about handling you estate.
The North Carolina Court of Appeals' recent decision in In re Will of John A. Jones, Jr. deals with a Caveat against a Will in favor of the decedent's wife filed by the executor of the prior Will, which provided only a life estate for the wife. The court affirmed the lower court's decision that there was no undue influence by the wife.
The Court of Appeals referenced the North Carolina Supreme Court case of In re Will of Turnage, 208 N.C. 130, 132, 179 S.E. 332, 333 (1935) in identifying seven factors that are probative on the issue of undue influence:
1. Old age and physical and mental weakness of the person executing the instrument.
2. That the person signing the paper is in the home of the beneficiary and subject to his constant association and supervision.
3. That others have little or no opportunity to see him.
4. That the instrument is different and revokes a prior instrument.
5. That it is made in favor of one with whom there are no ties of blood.
6. That it disinherits the natural objects of his bounty.
7. That the beneficiary has procured its execution.
If the person who contests the Will (the Caveator) can sufficiently prove some or all of these factors, he or she may be successful in having the Will declared invalid.
Another increase in North Carolina court fees: As of August 1, 2007, testamentary trusts (those contained in a Will) which account to the clerk are subject a fee of 40 cents per $100 of receipts. That fee is entirely separate from the probate fee paid by the estate. Thus, if a Will creates 8 testamentary trusts (all of which are required to account to the clerk), each of those testamentary trusts is subject to a probate fee of up to $6,000. Apparently, this change in the law applies to all testamentary trusts, including those that have been accounting to the clerk's office for years and have been paying only a $20 annual filing fee.
To avoid this fee, the Will must provide that the Trustee of the trust is not required to file accountings with the clerk.
Fees for probate have been increasing steadily over the last few years. All the more reason to use a living trust!
Clerks of Court, the ex officio judges of probate and guardianship matters in North Carolina Counties, can now order mediation in those cases. Parties to the proceedings can also request that mediation be ordered. See this memo on the Clerk Mediation Program from the North Carolina Court System website.
While I don't get involved in many contested matters, I have seen mediation work wonders. In many court systems, mediation is mandatory for civil proceedings. It can save time and money for the parties and help ease the crowded court dockets.
One of the important decisions involved in preparing a will is choosing an executor. The executor, called a personal representative in some states, is in charge of the administration of the estate and has many duties and responsibilities. Some of the more important tasks include:
Today I came across a question and answer column on the Raleigh News and Observer website called "Ask Holly." The answers are written by a Holly Nicholson, a Raleigh Certified Financial Planner who also has a law degree. The person posing the question about avoiding probate and finding a good lawyer erroneously referred to revocable trusts as "reversible" trusts. Ms. Nicholson counseled her to begin the attorney selection process by asking the lawyer about reversible trusts, and then consider using any lawyer who nicely explains that the term is actually "revocable" trusts.
I must respectfully disagree with Ms. Nicholson's recommendation. I believe that it is best to educate oneself about estate planning terms and techniques before attempting to choose a qualifed lawyer. Purposely acting ignorant serves no useful purpose, is deceptive, and is not a good way to start off what should be a relationship of mutual trust. Any attorney worth hiring will be polite and patient regardless of how much or how little a prospective client knows about estate planning.
IRS regulations allow an owner of an IRA to withdraw it for purposes of transferring it to another institution provided that the funds are placed in the new institution within 60 days. This is called a "rollover," as opposed to a trustee to trustee transfer, which is when the account funds are transferred directly from one company to another.
This is an area where many taxpayers get into trouble for not following the rules. Generally the IRS is very strict in enforcing the rollover rules, but relief is allowed in certain situations, usually where there was no fault of the taxpayer involved.
In a recent Private Letter Ruling (PLR 200717021), the IRS ruled that a “rollover” by a surviving spouse, who was also the administratrix of the decedent’s estate, was a valid rollover within the 60-day period even thought the taxpayer was deceased at the time of the rollover.
Private Letter Rulings can only be relied upon by the requesting taxpayer, but they serve as a good indication of how the IRS would rule in similar situations.
Yesterday Dale Earnhardt, Jr. announced that he is leaving what was his father's company, Dale Earnhardt, Inc. (DEI), to hopefully drive for another, more competitive company. When Dale Sr. died, he left ownership of DEI to his wife, Teresa, who is Dale Jr.'s stepmother. Dale Jr. had been in negotiations with Teresa, hoping to acquire a 51% stake in DEI. The failure of the negotiations led to Dale Jr.'s decision.
This appears to be the result of poor planning, or lack of planning, on Dale Sr.'s part. I can't imagine that he would have wanted his son to be shut out of DEI. Had Dale Sr. properly addressed succession planning for his business, he could have passed control of DEI to Dale Jr. while still providing plenty of resources for Teresa's support.
Similar results occur everyday in family businesses. Succession planning does not have to be particularly complex or expensive, but it can save family relationships, thousands of dollars in legal fees, and even the business itself.
What is Probate?
Probate is the court process for settling the estate of a deceased person. The executor named in a Will, or a court-appointed administrator if the decedent did not leave a Will, must open an estate file with the Clerk of Superior Court in the county where the decedent was living at the time of death.
The executor’s responsibilities include filing an inventory of the decedent’s property, sending notices to creditors, collecting and distributing funds, and filing accountings. Estates are usually settled within a year after they are opened. However, executors sometimes encounter complexities during the probate process which cause estates to remain open much longer.
The Benefits of Avoiding Probate
Probate in North Carolina has historically been fairly affordable. However, starting September 1, 2005, the fees for filing increased substantially. Prior to September 1, 2005, the filing fee included a charge of four dollars per one thousand of property listed on the estate inventory, with a cap at three thousand dollars.
Under the new law, the cap on the four dollars per one thousand is six thousand dollars. Therefore, the filing fees of an estate with property totaling $1,000,000 would have been $3,000 before September 1, 2005. Now, the filing fees will cost the estate $4,000. Filing fees for an estate with assets totaling $1,500,000, which also would have been $3,000, are now $6,000.
Besides the potentially sizable filing fees, probate can be time consuming and complicated, especially for an executor who has little experience with the process. Also, since all of the court documents are public records, there is no privacy in the probate process. Financial records and other personal information, such as the names of beneficiaries, may be examined by the public.
What Property is Not Subject to Probate
There are several types of assets which are not subject to probate. For example, if a married couple owns real estate in North Carolina, the property will automatically transfer to the surviving spouse. Real estate will also automatically transfer if it is held jointly “with right of survivorship”.
Life insurance and other accounts, such as retirement accounts or IRAs, where the holder named beneficiaries, are not subject to probate. Pay on Death (POD) or Transfer on Death (TOD) accounts are also non-probate assets, since these accounts direct a bank or brokerage company to pay a named person after the account holder’s death. A POD or TOD account differs from a traditional joint bank account because a beneficiary of a POD or TOD cannot access the account during the holder’s lifetime.
Preparing and funding a Living Trust is another effective method to avoid the probate process and associated fees. Any assets transferred into the Trust, before a person’s death, are not probate assets. Unlike probate documents, Trusts are private instruments. Only trustees and beneficiaries need to know the contents.
Most Living Trusts are revocable, meaning the creator, usually called the Settlor or Grantor, can amend, add to or revoke the trust completely. Living Trusts allow the Settlor to retain control over his or her assets. Typically, a Settlor is also the Trustee of the Trust and can determine how much of the income and principal should be used during the Settlor’s lifetime. Living Trusts can also provide for management of assets for beneficiaries after the Settlor’s death.
If you would like to save your loved ones the time and expense of probate after your death, contact an estate planning attorney for more information on these and other options.
On February 26, 2007, the United States Supreme Court declined to hear the wrongful death case against the North Carolina private security firm Blackwater Security Consulting, LLC filed by the estates of four of its employees killed in Iraq in 2004. The lawsuit alleges that the firm failed to provide proper equipment for the men.
While I haven't yet read any of the court pleadings, my guess is that Blackwater is concerned that it won't get a fair trial in North Carolina.