Death and Taxes Blog

One of the things that I emphasize as an estate planner is "making things easy" for the people who will ultimately handle your estate, by getting yourself organized. That saves them a lot of aggravation, and will also save your estate a fair amount of money, as no one will need to pay an attorney $200+ per hour to figure out how many bank accounts you had, or whether you executed a Will.

Columnist Christopher Yugo espouses the same philosophy in this Q&A regarding stock certificates. As a probate attorney, stock certificates are a real nuisance (and it sounds like Mr. Yugo has had the same experience). The best approach is to set up a brokerage account, and let an investment professional take care of fulfilling all necessary transfer agent requirements.

I've blogged about the strange case of Seth Tobias before, here. Now (here) there is news of a potential settlement.

Mr. Tobias's brothers were previously attempting to use the so-called "slayer statute" to argue that Mr. Tobias's widow, Filomena, was involved in his murder and should therefore be disinherited.

Presumably Mr. Tobias's brothers are dropping their claim for a share of the estate.

One of the biggest little problems in probate is how to deal with tangible personal property -- furniture, clothing, furnishings, etc. left by the decedent. Most Wills leave such property "in shares of substantially equal value" to decedents -- that language recognizes that you can't divide tangible personal property in equal shares the way you divide cash equally. But it still fails to address typical problems with this type of property:

1. What if two individuals want the same piece of property?

2. Is equality based on actual value? If so, what about sentimental value?

The problem is even worse if you have an intestacy with unequal shares. I have one of these right now -- three siblings of the decedent (each getting 1/3rd), with the last share being split among 7 children.

There's also a question of how, as a practical matter, to facilitate the distribution. Some people use the hat -- if there are 3 kids, then all 3 names are placed in a hat, and the order in which they come out is the order for the children to pick items they want. If it's Tommy, then Billy, then Alice...

Tommy picks first (choosing one item)
Billy picks second (choosing one item)
Alice picks third (choosing one item)
Tommy picks fourth (choosing one item)
etc. etc. etc.

You can add more certainty (and more complexity) to this process by having all tangible personal property appraised, and then "charging" the fair market value of property taken by each individual against that individual's share of the estate. That addresses what happens if Alice chooses all of mom's (expensive) jewelry and the other two choose only lamps and other less valuable items.

Another idea comes from this new website: edivvyup.com. Basically, the site allows you to create an auction, open only to the estate's beneficiaries. Beneficiaries get points, which they can use to bid on items. Whoever bids the most points on an item gets it.

One of the questions asked most often of me is this: "I am acting as executor (or administrator or trustee), and want to take compensation. How much compensation is appropriate?"

For the most part, the law isn't helpful on this point. Most Wills and trusts talk about "reasonable compensation," language echoed in the Probate Act:

Sec. 27‑1. Fees of representative. A representative is entitled to reasonable compensation for his services....

and the Trusts and Trustees Act:

Sec. 7. Compensation. The trustee... shall be entitled to reasonable compensation for services rendered.

Not particularly helpful -- the caselaw isn't either, really. So what is reasonable compensation? Here are some of my thoughts on the issue:

1. Reasonable compensation is whatever the beneficiaries are willing to agree to. If all the beneficiaries agree in writing that your fee is OK, isn't that per se reasonable?

2. Of course, compensation is often sought in contested cases. One thing I hear from fiduciaries: "I wasn't planning to pay myself, but my parent/siblings have been so annoying and I've put in so much work that I want to get paid!" In these cases, some persuasion may be necessary.

3. I tell fiduciaries to keep records of what they do, just like attorneys should. Be able to tell the beneficiaries what you did, and how long it took you. Presentation and detail are important -- people are more willing to consent to a $10,000 bill if you point out, in detail, what you did, and the benefit to the estate or trust.

4. The tricky part is taking the above time (let's call it 200 hours), and determining an amount from it. What's your hourly rate? I can see two approaches:

a. Set a fairly minimal hourly rate ($25 or $50), on the grounds that that's what it would take to hire someone to do fiduciary tasks.

b. Just use the rough hourly rate for your regular career. If you are an accountant and make $75 per hour, charge that. If you are a surgeon who makes $700 per hour, charge that. Of course, the higher the rate, the better chance that the beneficiaries are going to take you to court to protest. And I seriously doubt that any judge is going to allow you to take a fee based on $700 per hour.

5. One thing I run into occasionally is attorneys trying to charge their hourly attorney rate to do fiduciary tasks. I object to these attempts almost as a matter of course. It's almost an incapacity/undue influence argument. No one (or, at least, very few people) in their right mind would agree to pay someone $300 or $400 per hour to perform administrative tasks like preparing an accounting, or collecting assets. And, if the attorney/fiduciary also prepared the Will or trust that names him or her as fiduciary, then I have questions about whether the decedent understood what was happening. To me, there's little difference between leaving the drafting attorney $50,000 as a bequest (a big no-no) and leaving the drafting attorney with the ability to charge $50,000 to the estate or trust in fees. Absent signed, informed consent from the client, this seems like an abuse.

6. Some states determine compensation based on the value of an estate. To me, these things have little relation. The lives of the poor can be very complicated; the lives of the rich may not be.

Here's a fairly common situation:

Jack and Judy Smith die, leaving four children: Allen, Barbara, Charles, and David. Jack and Judy owned a house at the time of their death -- the same house where they raised their children. Jack and Judy had a Will, naming Allen as executor and leaving all of their property equally to their four children. David wants to purchase the house. May he do so?

The short answer is "yes." Some comments on such a purchase:

1. The executor has to make the deal at fair market value unless the beneficiaries agree otherwise.

2. Keep in mind that David already owns 1/4 of the house. So (to simplify), if the house has a value of $400,000, he's really only has to pay $300,000.

3. In some cases, the child who wants to make the purchase is living in the house already, or various children have paid to keep up the house since Mom and Dad died. That's a bit trickier, as the executor needs to prepare an accounting to make sure everyone is paid appropriately. Also, if David was living in the house after his parents passed away, he should be assessed fair market rent.

I've written before about probate real estate investors -- people who attend seminars (like this one) and then try to launch careers buying real estate in probate for pennies on the dollar, flipping the real estate, and becoming rich.

Evidently this practice is more common than ever. I recently filed court documents to be appointed as the administrator of a Cook County probate estate (long story, but there's nobody else who wants to act). The court hearing is set for next week, and all I've filed with the Court is my Petition for Letters of Administration. Yet right after I filed the Petition, I received the following letter from two different individuals (I won't mention their names or the name of the decedent, who I'll call "Ms. X"). Here's how the letters (which are essentially identical) start:

Dear Joel,

First, let [me/us] take a moment to offer [my/our] condolences on the passing of your loved one, Ms. X. While [I/we] know this can be a very emotionally sensitive period, [I/we] also understand you may be facing some serious decisions with which [I/we] might be able to assist you. The reason [I/we] are contacting you is often times...

Here the letters diverge a bit. Both letters talk about how they can help me and my family.

If you were teaching a seminar in acquiring probate real estate, wouldn't you tell people that they shouldn't send your form to every potential seller?

I previously blogged about slimy ex-judge Robert Cochonour here and here. The charitable foundation that was supposed to inherit Jay Hayden's property wants Mr. Cochonour to supply answers about where the money went; the probate judge handling the case is suggesting that this is an "exercise in futility" (here's the article).

Without absolving Mr. Cochonour of any of the blame, I have to wonder about this passage from the article:

When Hayden died of cancer in 1985, he left Cochonour in charge of his estate, most of which was bequeathed to the Jay E. Hayden Foundation.

In 2002, foundation officials started asking why they had not received the money willed by Hayden almost two decades years earlier.

If you know you are an estate or trust beneficiary, the time to ask questions is now -- do it early and often. Don't wait 17 years.

I met with a potential client last week, to talk about revisions to her estate plan. We reviewed her current documents, which show a local bank as successor trustee of her living trust. This struck me as odd, as the woman (a widow) has three grown children and a fairly short, fairly easy-to-handle list of assets (house, investments accounts, insurance). According to the woman, her previous attorney had an affiliation with the local bank, and placed the trustee language into the document on his own. The woman hadn't met with anyone from the bank (other than the attorney), and hadn't seen their fee schedule -- basically, she didn't know anything about the bank.

To me, this is a huge conflict of interest, and really no different from the attorney naming himself as trustee. Actually, it's no different from the attorney leaving money to himself from this woman's trust.

I've said it before and I'll say it again...

Q: What time is it when your attorney seeks to name himself or an entity with which he's affiliated in your estate plan?

A: Time to find a new attorney, and time to report your old attorney to the Illinois ARDC.

Section 9-3(j) of the Illinois Probate Act allows a decedent's creditor to act as the administrator of the decedent's estate (but only if there's no one else able and willing to act).  I don't know of many cases where a creditor would want to assume this burden, but it's important to realize that, in doing so, the creditor-administrator assumes all of the regular duties of an administrator.  For instance, the creditor-administrator owes a duty to ALL beneficiaries and creditors of the estate, not just himself.  That includes a duty to maximize the value of estate assets.  A funeral director in Connecticut who was named administrator of a decedent's estate (presumably to get his own bill paid) ran into problems with this issue, as described here:

Bridgeport Probate Judge Paul J. Ganim made clear Monday that he plans close scrutiny of Coventry funeral director Kevin K. Riley's administration of an estate in which a deceased woman's home was sold for $175,000, then resold less than four months later for $305,000.

On an almost daily basis I hear stories about how this grandson or that daughter walked off with a decedent's property immediately after the decedent's death.  The biggest problem in most of these situations is one of proof -- you may know what grandson or daughter did, but can you prove it?  The executor in this case went to the police, who quickly connected the dots in the case of grandma's missing furniture:

The antique furniture was reported missing from the residence of the late Margaret Christian, 208 Center Ave., Surgoinsville [Tennessee], on Nov. 6 by the executor of her estate, her son Elbert Christian Jr.

Surgoinsville Police Department Officer Scott Fink said he interviewed Elbert Christian, who suspected that the burglary might have been committed by a relative. Fink said it was just by chance that the next relative he interviewed, Christopher Todd Christian, 34, 2114 Main St., Surgoinsville, admitted to taking the furniture with two accomplices.

Fink said he then went to speak to the two alleged accomplices, Mike Thomas Head, 54, and Ronald Keith Nunley, 48, both of 114 Henderson St., Surgoinsville, at their home and found the majority of the stolen antique furniture there.

The three men were arraigned today.  Bravo to the executor, for not letting the grandson get away with this, and bravo to the police for pursuing the wrongdoers.

While there are Illinois statutes telling executors and trustees what they may do, there really aren't many statutory references to what they can't do, or to the general duties a trustee or personal representative owes to the beneficiaries.  These duties are generally a creature of caselaw, which makes secondary sources an important research tools when disputes arise over a fiduciary's conduct.

Take, for instance, the trustee who loans money from the trust to himself.  The first question is whether the trust document allows this (most trusts don't).  If not, the trustee may ask, "but what's wrong with doing this?"  One answer comes to us from Bogert’s Trusts and Trustees (§543(J)), which says that a trustee who loans trust funds to himself…

brings into play a conflict of private and representative interests. As lender it is his duty to get the best terms possible as to interest, security, and maturity. As debtor his impulse is naturally in the direction of getting the money at the lowest rate and often on other terms not advantageous to the lender. If he lends to himself, he cannot give an impartial judgment as to the adequacy of the security offered.

In other words, think about the terms and conditions a trustee would impose if a third-party came to him and asked for a loan from the trust.  Would he make the loan?  What would the terms (interest rate, repayment dates, etc.) be?  Even if the trustee isn't trying to put himself ahead of the trust beneficiaries, he can do so in ways large and small.

What's the penalty if a trustee loans money to himself?  Traditionally, when a fiduciary makes a loan to himself, “he is chargeable with principal and interest, or with any profits he makes thereby, at the option of the beneficiaries. Where a trustee uses trust funds in his own business, he is chargeable with principal and interest or with a pro rata share of the profits of the business at the option of the beneficiaries.” Scott on Trusts, §170.17 at 387.

This article offers a "two-fer" in terms of information: telling people how to choose an executor, and giving executors a list of their duties.

On Tuesday I spoke briefly about executors trying to honor a decedent's wishes, even when it may mean that the estate's value isn't maximized.  On a somewhat similar note comes a follow-up regarding the estate of Chicago comedy legend Del Close.  According to his Wikipedia entry, Mr. Close "donated his skull in his will to the Goodman Theatre for use in Hamlet productions, on the condition that he should receive credit in the program as Yorick." Now his executor has admitted (here - registration may be required) that "she tried to carry out Close's wishes, but pressure from the morgue caused her to instead buy [and give the Goodman] a skull from the Anatomical Chart Company in Skokie."  Alas, poor Mr. Close!  We knew him well -- and his wishes weren't honored.

I've spoken in the past (here) about the importance of a "bye-bye" file.  If you have older people in your life (parents, friends, even a spouse), it's also a good idea if you have a list of what needs to be done when someone passes away.  The Wall Street Journal explains more in this nice article (registration required).

There may be some duplication on the lists, but at least nothing will slip through the cracks.

I've spoken a little about this before (here), but entities with claims against a decedent's estate have their backs against the wall from a leverage perspective.  During your life, you may pay off your credit card bills ASAP because of the fear that your credit rating will be harmed by doing otherwise.  But dead men neither tell tales nor have credit ratings.

In order to collect on a debt owed by a decedent, a credit card company or other creditor will have to hire attorneys to monitor the probate, file a claim, make court appearances, negotiate a settlement, etc.  That takes up a lot of time, energy, and money.

In my experience, businesses (especially big businesses) trying to collect on a debt owed by a decedent are willing to negotiate a reduction in their claim in return for immediate payment.  For instance, today I negotiated a reduction in a credit card debt, from $33,000 to under $25,000.  Everybody wins:

1. The credit card company gets paid ASAP.

2. The estate saves some money.  However, note that the savings are offset by the fact that the difference between the debt owed and the debt paid is income to the decedent's estate.  Even so,...

3. I as the attorney can feel good about having saved the estate $5,000 or so.

The moral of the story for executors is: don't be shy about negotiating with the estate's creditors.  You have nothing to lose but the decedent's debts!

This MarketWatch article gives a nice overview of the issues involved in selecting a corporate trustee to handle your affairs (after your death or incapacity). 

I think a lot of people get scared by the idea of using a corporate trustee (or executor) because of fee concerns -- most corporate fiduciaries will charge annual fees of at least 1% of the value of assets under management, whereas family members acting as trustee or executor may not take a fee at all.  Of course, the old maxim that "you get what you pay for" might be applicable here. 

If you don't have any close family members who can handle the various tasks required of a fiduciary, or if your affairs (either assets or family relationships) are complicated, a corporation may be the way to go.

If you are interested in a corporate trustee or executor, I'd start by interviewing two or three different institutions, to get a sense of fees, procedures and the like.

I am occasionally asked to act as executor or trustee for my clients.  I'm somewhat reluctant to do so, but in some cases it's a necessity -- some of my clients simply don't have anyone else in their lives who can do the job.

In these cases, I have to go through a fairly extensive disclosure of all of the reasons why you might not want your attorney to act as fiduciary, including but not limited to the conflicts of interest that arise...

-due to the fact that I will be executor/trustee and the attorney for the executor/trustee; and

-as a result of the standard exculpatory language I include in my estate planning documents.

I then have my client sign the disclosure and consent to my acting as fiduciary.

A lot of clients want to name co-fiduciaries in their estate planning documents -- co-executors in their Will, co-trustees in the trust, co-agents in their powers of attorney.  There is a very good reason why this isn't always a good idea -- columnist Bruce Williams talks about it in this article.

The Illinois statutory forms for powers of attorney do not allow co-agents, and with good reason.  Co-executors or co-trustees can be used with success, but you need to have the right people for the job.  And I don't think I'd ever recommend having more than two executors or trustees -- that seems way too unwieldy.

BusinessWeek online has a nice story (here) about the risks of acting as executor.  As the article puts it,

If asked to be an executor, you may feel flattered, or loath to turn down a loved one. But think carefully before accepting. Executors are entitled by law to be paid, but the work is generally tedious and time-consuming, even if you farm some of it out to professionals. Moreover, if you make mistakes, you may damage relationships with other heirs or even be held personally liable.

There are usually three hot-button areas that can cause you trouble as executor:

1. Doing your job.  This is obvious, a no-brainer.

2. Doing things in a timely manner.  I'm working on an estate matter right now where the decedents, a married couple who owned a condo in downtown Chicago, died in 2002 and 2003.  The executor just recently put their condo on the market -- it's been sitting vacant for more than three years (the executor didn't bother trying to rent it out, either).  Big mistake.

3. Keep the beneficiaries informed and up to date.  Think of yourself as working for the beneficiaries of the estate.  Give them updates at regular intervals -- ask them WHEN (and how) they want to be updated.  This is especially important if you are thinking of taking an executor's fee -- you'll need to produce timesheets showing exactly what you did to benefit the estate.