The Basics of the District of Columbia Probate Administration…Part II: Qualifications of the Personal Representative

This is a second of series of posts on the basics of D.C. probate administration. You can read the first post on the high-level differences between Virginia and D.C. estate administrations and what type of assets are controlled by a D.C. probate administration by clicking here. This post will focus on qualifications of being able to become the personal representative.

Like in Virginia, the personal representative’s role is to administer the decedent’s estate by finding and marshaling the decedent’s probate assets, pay claims or bills and expenses of administration and, generally, wind up the affairs of the decedent. The personal representative is a fiduciary to the estate. Being a fiduciary means that the personal representative is in a trusted role. The personal representative owes a duty of care and loyalty to the estate.  A personal representative must provide a surety bond unless posting a bond was waived by the decedent in the will or waived by the beneficiaries.

The first issue for any person that wants to administer a person’s estate is to become the personal representative. Unlike Virginia, a court appoints a personal representative because of some relationship to the decedent or the decedent’s estate. D.C. code Sec. 20-303 provides a specific order for a person to become personal representative. The court is under no obligation to follow the priority though the court needs a reason to appoint someone out-of-order.

A personal representative will be appointed by the court in the following order:

  1. the personal representative named in the will,
  2. the surviving spouse, domestic partner, or children of an intestate decedent or the surviving spouse or domestic partner of a testate decedent,
  3. a residuary legatee(s),
  4. the children of a testate decedent,
  5. the grandchildren of the decedent,
  6. the parents of the decedent,
  7. the brothers and sisters of the decedent,
  8. next of kin of the decedent,
  9. other relations of the decedent,
  10. the largest creditor of the decedent who applies for administration, and
  11. any one else.

There are also several other factors that the court will look at in appointing a personal representative. A younger family related person will be preferred over an older one e.g. the court prefers a niece/nephew over an uncle/aunt. It is very difficult for people with different levels of personal representative priority to serve as co-personal representatives.

The court will also exclude those people who attempt to become personal representative that have the following restrictions:

  • filed a written renunciation in not wanting to be the personal representative,
  • not over eighteen (18) years of age,
  • a mental illness or ward,
  • a convicted felon,
  • an alien who has not been lawfully admitted for permanent residence,
  • a judge of any court established under the laws of the United States or is an employee of the Superior Court of the District of Columbia, the District of Columbia Court of Appeals or the District of Columbia Court System unless that person is a surviving spouse/domestic partner of the decedent, and
  • non-resident of D.C. unless they file a power of attorney.

Next post will get into one of the basics of the D.C. administration but results in a great deal of confusion: what is the difference between standard probate, abbreviated probate, supervised and unsupervised probate administrations.

Posted in Personal Representatives, Probate, Process, Qualifications | 8 Comments

The Basics of the District of Columbia Probate Administration…Part I

Seems like only yesterday, but way back in September of 2010, I wrote a series of posts on   the Virginia probate administration process. If you missed it, you can click here and work your way through the ten part series.

It has taken me over two years but I thought I would start a series of posts on the District of Columbia probate administration process. Maryland will have to wait for another day. I hope it doesn’t take me more than two years to get to it. But, I can’t promise.

First, you might ask: aren’t Virginia’s and DC’s probate administration processes the same. Unfortunately, it depends. At a high level, the administration processes are the same. After a person dies, a personal representative is appointed to marshal all the decedent’s assets, pay off debts, distribute inheritance to the heirs, wind down the affairs of the decedent, and attempt to fulfill the wishes of decedent’s Last Will and Testament. The court is involved, on some level, to monitor and ensure the personal representative follows through on their appointment.

At the low-level, the processes are much different. Each jurisdiction places emphasis on different areas of the administration. Not surprising, DC, generally is more restrictive. But, that is not always the case and I will get into the differences along our journey through DC’s probate administration.

To start off, like Virginia, DC’s probate administration only covers probate assets. Probate assets are anything held solely in an individual’s name at the time of death. It could be a bank account with only the decedent’s name on it.  Or, it could be a piece of real estate, like a home residence, with a deed titled only in the decedent’s name.  It is any asset that after the decedent’s death you can not determine what beneficiary should receive an ownership interest in the asset through joint ownership with a right of survivorship or has some type of beneficiary designation.

Non-probate assets, such as an IRA account, become the property of the designated beneficiary upon the decedent’s death that owned the asset.  Assets owned in either joint tenancy with right of survival or tenancy by the entirety (click here for more information on joint tenancy) where the surviving owner of the property takes ownership of the asset upon the decedent’s death are also non-probate assets. The existence of a will is irrelevant to those assets because you know who receives the ownership interest in the asset by operation of law. Non-probate assets will not become part of the decedent’s probate estate and probate administration will have no control over those assets.  You can learn more about the differences between probate and non-probate assets by click here.

Lastly, unlike the Basics of Virginia Probate Administration, I will mix in other posts about various estate planning items in between this series.

Copyright © 2013 Law Office of Christopher Guest, PLLC.

Posted in Asset Ownership, Non-Probate Assets, Personal Representatives, Probate, Probate Assets | 9 Comments

What’s the Difference between Probate and Non-Probate Assets?

About 7 months ago, I went though the various concerns people confront using joint tenancy with the right of survivorship (JTWROS) as an estate plan. The next step is to demonstrate the issues between probate asset and a non-probate asset. As you can from an Estate of the Month I did in my newsletter, not correctly accounting for probate assets can lead to problems.

Probate assets are assets that are in the sole name of the decedent at the decedent’s passing without any other owners or without a payable on death or similar type of beneficiary designation. Individual assets include bank accounts, investment accounts, stocks and bonds, cars, boats, airplanes, business interests, and real estate. Any portion of an asset owned by the decedent as tenants in common would be a probate asset, too. Probate assets are controlled by a person’s Last Will and Testament and the Will dictates to whom that asset will be bequeathed.

Non-probate assets are the assets not controlled by the decedent’s will and are distributed in some other fashion. Examples of non-probate assets include:

  1. Property owned as either as JTWROS with another person or tenants by the entirety by a husband and wife. A will also does not control JTWROS assets because the decedent loses ownership of the asset upon the decedent’s death. Wills only control assets after the testator dies.
  2. Assets in which you retain a life estate and the remainder passes to a non-charitable beneficiary other than yourself i.e. the age old property example: Blackthorn to A for life, then to B.
  3. Assets owned by your Revocable Living Trust.
  4. Assets that pass by operation of law when a decedent has designated a beneficiary to receive the asset e.g. a husband lists his wife as the primary beneficiary to receive his life insurance on his death. Other designated beneficiary examples include:
    • Payable on death (POD) accounts, transfer on death (TOD) accounts, in trust for (ITF) accounts and Totten trusts;
    • Retirement accounts, including IRAs, 401(k)s and annuities; or
    • Health savings accounts (HSAs) or medical savings accounts (MSAs).

To make it even more confusing, non-probate assets, especially assets in number 4 above can revert to probate assets.

The decedent can take active steps to make the non-probate asset a probate asset. For example, a decedent can name the decedent’s estate as the beneficiary of a life insurance policy. The estate is the beneficiary of the life insurance policy and, if there is a will, the will controls where the death benefits go.

The decedent can take also passive steps for the non-probate asset to become a probate asset. In a very common scenario, the decedent will not name a beneficiary on a POD account and, thus, the estate is considered the beneficiary. Another passive way is for the decedent to not update designated beneficiaries, if the primary and secondary beneficiaries have passed away. The non-probate asset will flow to the estate since no beneficiary is there to receive the non-probate asset.

Making sure how your assets are transferred can go a long way to preventing assets being distributed to the wrong person or contradictory to your intent.

Copyright © 2013 Law Office of Christopher Guest PLLC.

Posted in Asset Ownership, Assets, Non-Probate Assets, Probate Assets | Leave a comment

The Fiscal Compromise and Estate Planning

Luckily…

It is a few days since the world was allegedly going to end – either on the Mayan Calendar or the Fiscal Cliff Calendar – and we survived. We also got an answer to the question of whether there would be an estate tax fix for 2013? The answer is “yes.” But, what was that answer.

Here is the impact of the American Taxpayer Relief Act of 2012 (ATRA) compromise as it relates to estate planning:

  • Extended the inflation-adjusted individual $5 million gift, estate and generation-skipping transfer (GST) tax exemptions that were put in place in 2010. For 2013, inflation adjusted exemption amount for the three taxes will be $5.25 million.
  • Raised tax rate on estates with assets above the gift, estate and generation-skipping transfer (GST) tax exemptions levels to a top rate of 40%.  This is an increase from 35% in 2011 and 2012.
  • Made permanent portability for married couples.  As long as a federal estate tax return is filed in the death of the first spouse, portability allows the surviving spouse to use the unused federal estate tax exemption of the first spouse to die. If both spouses die in 2013, that would result in the ability to shield $10.5 million in combined assets from federal estate taxes.
  • Retained the ability to deduct state estate taxes on the federal estate tax returns. A gift to those states that apply a state estate tax and complain it makes their states less attractive to older residents.
  • Retained,  for the time being, the current tax and legal status of grantor retained annuity trusts, valuation discounts, unlimited-term generation-skipping trusts and other high-level estate planning techniques. All of these techniques have targets on their back and could be reduced or eliminated in the upcoming negotiations.

In addition to ATRA raising the income tax rates on affluent Americans – those making more than $400,000 (single) and $450,000 (married) – ATRA impacted other areas of the income tax that cross-over with estate planning. Those changes include:

  • Reinstated the tax-free distribution from an individual retirement plan directly to a qualified charity. The ability to make this charitable transfer technically expired at the end of 2011.  But, ATRA included a special provision permitting individuals to make a  payment directly to a charity in January 2013 and still be treated as a tax-free 2012 distribution from the IRA.
  • Eliminated the need for the Alternative Minimum Tax “patch” that occurred every year by adding an inflation index to the AMT exemption levels.
  • Reintroduced back into the tax code limits on itemized deductions (PEASE) for adjusted gross income over $250,000 (single), $275,000 (head of household) and $300,000 (joint filers). In the past, PEASE applied across the board on all of a person’s itemized deductions including donations to qualified charities. With PEASE reintroduced, it will likely mean a reduction in clients creating Charitable Lead Trusts and other similar entities because of the reduced tax savings that occurs because of PEASE.  I think I will get into this more in a future post.
  • Reintroduced back into the tax code phases out personal exemptions (PEP) for adjusted gross income over $250,000 (single), $275,000 (head of household) and $300,000 (joint filers).  PEP and PEASE are rather nasty tax provisions because it slashes a persons deductions and silently increases a person’s effective tax rate e.g. a married couple having an AGI of $350,00 would be in the 35% tax bracket but have a higher effective tax rate.

However, there are still three more big  fiscal issues (debt ceiling increase, remaining 2013 budget reconciliation and sequestration) confront the federal government over the next 60-90 days.  Anything can happen and the above estate and tax provisions could all change by the first day of spring.

I also apologize for the long silence, the fiscal cliff created a great deal of work in December. I worked at least some on everyday of the month, including Christmas, aiding clients to prepare for the end of the year tax changes and that left no time to add to my blog. My New Year’s resolution is to do better.

Posted in Assets, Estate Planning, Federal Estate Tax, Income Tax, Portability | 1 Comment

Will there be an Estate Tax Fix in 2013?

It’s been about ten days since the Presidential election and with everyone relaxing a little, now is a good time to talk about what the election results mean for the estate tax and estate planning.  If you are not aware, on January 1, 2013, the estate tax reverts back to a $1 million exemption level, the lifetime gift tax exemption is lowered to $1.0 million and the generation skipping tax exemption level  will be approximately $1.0 million.

Late in 2010, I presented the various scenarios on where the estate tax would go. I’ll note, not one of the scenarios was 100% accurate.  The estate and gift tax realm in 2011 and 2012 had the following main tax provisions:

  • $5.0 million per person federal estate tax exemption with a tax rate of thirty-five percent (35%) that was indexed with inflation.
  • $5.0 million per person federal lifetime gift tax exemption with a tax rate of thirty-five percent (35%) that was indexed with inflation.
  • $5.0 million per person generation skipping tax exemption with a tax rate of thirty-five percent (35%) that was indexed with inflation.
  • Portability was introduced to allow a married couple to shift their individual federal estate tax exemptions between the two spouse to provide a $10 million exemption.

But, where will go from here?

President Obama’s 2013 budget proposal released earlier this year had the following positions:

  • Reversion of the estate and gift tax rates and exemptions back to 2009 levels (i.e. federal estate tax and generation skipping tax exemptions would be lowered to $3.5 million and lifetime gift exemption would go back to $1.0).
  • Portability would remain between spouses but at $7.0 million level. This is a change for President Obama’s 2011 Budget proposal.
  • Basis reporting requirements for donated and inherited property to better track capital gains.
  • Minimum 10 year term for Grantor Retained Annuity Trusts (GRATs).
  • Elimination of the tax benefits associated with the sale to an Intentionally Defective Grantor Trust (IDGT).
  • Duration of GST tax exemption limited to 90 years to limit future dynasty trust planning.

My best guess is that the above will be the opening position for the President in any estate tax discussions. In other words, this is the floor you can probably work from if you believe some form of compromise will occur. I am not so sure of that anymore. I’ve been telling most people you have to plan for how the 2013 estate tax law is currently written. To make matters worse, I have also seen a number of experts state the going over the fiscal cliff might be a good plan long-term because it would allow a fresh start for everyone.

The biggest proponents in the Senate for estate tax reform on the side of higher estate tax exemptions or elimination of the federal estate tax exemptions – Blanche Lincoln and Jon Kyl – are no longer or will no longer be Senators in 2013.  That means a level of uncertainty. It is not determined what Congressman or Senator will replace Senator Kyl as an advocate for higher exemption levels.  For those people wishing lower levels, Senators Bernie Sanders, Tom Harkin and Carl Levin  and Carl’s brother Representative Sander Levin are still in Congress.

Another big issue is that estate tax could get pulled into the broader discussions reforming the entire tax code – personal, corporate, etc.  That means anything can go and any number of outcomes could result. And, without the strongest advocate for a higher level of estate tax exemptions that means the chances of a lower level are certainly greater.

Needless to say, the political arm twisting in D.C. over the next few months will be interesting and could provide unsuspected outcomes.

Posted in Estate Planning, Federal Estate Tax, Gift Tax, Income Tax, Portability | 2 Comments

The Need for Digital Estate Planning – Part II

Last time, I discussed the importance of planning for a person’s digital estate. I also mentioned the need to plan for your digital assets has only emerged over the last few years.  Unfortunately, that means how digital assets are treated with respect to your estate are untested. Luckily, there is some public and private help available.

On the public front, at least five state legislatures have passed laws addressing a person’s digital estate. First, Connecticut and Rhode Island’s laws only address a person’s email accounts. They didn’t address digital assets like Photobucket™, Itunes™, etc. It is hard to forget that the Iphone™ was only released 5 years ago.  Second, even the more thorough Oklahoma and Idaho laws have not been challenged in court to date to determine their validity and constitutionality.

So that leaves individual solutions.

You could keep a slip of paper listing all your information and store it in your house somewhere.  Though, the lack of security sounds like the start of a bad movie.

One practical solution is to keep a list of passwords and similar information on a flash drive or stored on your computer somewhere but title the file something unique – i.e., not “passwords” – and informing a person you trust about the file. One caveat, do not make the document that lists your passwords password protected.

You could also place your flash drive with the passwords stored on it in a safe deposit box. But, make sure someone knows where it is and can access it. Many providers also require periodic updating of your password, which means a trip to the bank every time you update a password. That isn’t very convenient.

A number of private companies have been established to meet the needs of consumers looking to protect their digital assets. But, living in a capitalist society, it will come at a cost.

Generally, the companies offering digital asset protection services break into two groups.

The first group of companies will secure the passwords of the digital assets accounts allowing the account holder to list beneficiaries to a particular digital asset. This would be similar to a person designating beneficiaries on a life insurance policy. I can’t vouch for these companies but two companies that provide these services include LegacyLocker™ and Securesafe™.

The other type of company in this field preserves all the assets in one place digital location. It incorporates all the digital pictures, emails, and the like into a digital legacy that a person can pass on to that person’s heirs. One company in this field is Gen-Ark™. Again, I have not used them personally and can’t vouch for them.

One issue that needs to be considered when using these digital asset protection services is the relative youth of the industry.  Most of these companies offering digital asset protection are start-ups. The company could be bought by a competitor that could drastically change services provided and/or pricing. In fact, Securesafe™ bought Entrustet™ – a company I mentioned in another article a year ago. Or, the company could go under.

One other hi-tech solution would be to use a cloud type answer. Maybe keep all of your digital assets in DropBox™ or other cloud type system and give access to another person to ensure the digital assets can be passed on. Maybe not ideal, but at least a thought.

I feel confident in saying that given the growth in digital assets and their importance, better solutions will emerge in the coming years.

Posted in Asset Ownership, Assets, Atypical Asset, Digital Assets, Digital Estate Planning | Leave a comment

The Need for Digital Estate Planning

There is a new show on NBC called Revolution. The premise of the show is that there has been a worldwide blackout and all the electrical devices have shutdown. No TV. No computer, no A/C, etc.  The blackout has lasted 15 years.  As a quasi-sci-fi geek and a big fan of  J.J. Abrams, the producer, the story is right up my alley.

In one scene in the second episode, one of the characters pulls out an IPhone™4. I guess the blackout occurred prior to September 21, 2012. The character laments that the only pictures she has of her children were taken with the phone’s camera.  No electricity, no access to the pictures.  For unexplained reasons, she hasn’t seen her children alive since the blackout and the only pictures she has were on her phone.

I’ll admit that this is a bit of an extreme example but not too far off when returning to the world of reality because the issue of accessing those assets is an estate planning issue.

What if the you could not access the pictures because the original owner of the camera? Or in a more likely scenario, the digital account held pictures (Photobucket™), emails (Yahoo™, Google™, Hotmail™), documents (DropBox™), etc. where the account owner has passed away or become incapacitated. If you did not know the password to the phone or the account, you would be faced with limited options in getting those pictures or other electronic media. I would think that might even be more frustrating.

Thus, an estate planning issue.

That phone and its pictures are part of a person’s assets. It would be a part of a person’s digital estate. Maybe a picture does not have a high financial value but it does have a emotional one, especially, to the loved ones seeking access to that digital assets. Some people have even sued to gain access to their loved one’s email accounts.

Most non-digital assets have a process for the personal representative (probate) or beneficiary (non-probate) to gain access or control because of a long litany of case law or legislation. Digital assets and a person’s digital estate has only arise within the last 20 years and exploded with the emergence of smartphones. There is no legal history regarding a digital estate to fall back on for the personal representative to gain access to that digital asset.

Access to a digital asset is currently dictated by the privacy policies and contractual agreements between the account holder (even if deceased) and the service provider (say Google™). This has created a hodgepodge of policies that has generally resulted in denying access to the non-digital asset holder seeking access or making it very difficult to gain access for the the non-digital asset holder.

Right now, there are some solutions. Many are not ideal. I will write about them next time.

Posted in Digital Assets, Digital Estate Planning, Estate Planning, Personal Representatives | 3 Comments

The Driverless Car and Estate Planning

In today’s Wall Street Journal there was section on the future of automobiles.  The first article, titled “Nobody Behind the Wheel,” described how the future of the driverless car is coming.  The other article, titled “Trucks Will Roll Down an E-Highway In California Test” was on trucks transporting cargo along a trolley system in California.

I immediately thought about the articles applicability to estate planning.

Now, you might wonder how I jumped from futuristic cars to estate planning. But, many people I met talk about not needing an estate plan because intestacy will handle everything, they do not have a large enough estate to worry about it, or everything is controlled by joint tenancy or beneficiary designations. They think intestacy adequately distributes a decedent’s assets.

Intestacy is the government’s plan  to distribute a decedent’s probate assets in accordance with a set priority.  A decedent’s probate assets that are distributed are governed by the familial relationship of the beneficiary to the decedent. Intestate statutes also dictate what percentage a beneficiary will receive from the decedent.   Intestacy statutes do not take into account needs of the beneficiaries or desires of the decedent.

Estate planning is more than a person’s asset that are distributed out under the intestacy statutes. Estate planning is also about if you have become incapacitated and need someone to oversee your financial affairs through a Power of Attorney. Or, it is making sure you have appointed the correct person to speak for you with regard to end of life decisions in Advanced Medical Directive. Putting those decisions on auto-pilot could result in the wrong decision or person making decisions for you.

Like a driverless car, where simply pushing a button will take a person from Point A to Point B, many people feel estate planning needs is only a one-way solution.

It is simply not the case.

Posted in Advanced Medical Directives, Asset Ownership, Durable Power of Attorney, Estate Planning, Intestate, Joint Tenancy | Leave a comment

Sorry.

Let me apologize for not posting a new blog item in the last 6 weeks. It has been a crazy end of the summer with work and vacations. Then my daughter started kindergarten and it took some time to get everyone up to speed on that transition.

But, with everything settling down I will have something out by the end of the day. I  promise.

Posted in Announcements | Leave a comment

How to Estate Plan for That Unusual Asset

As most people know, I am a very big NFL football fan. Unfortunately, poor estate planning and NFL football players goes hand-in-hand, as you can read herehere and here. However, even regular fans in the stand, watching the games have estate planning issues related to the NFL.

Most NFL teams have huge waiting lists for season tickets. The Washington Redskins have a reported 200,000 person waiting list, though I see emails about buying Redskin’s tickets all the time. (Sorry, just a little dig at the Redskins fans.) Most season ticket holders do not realize that season tickets are an asset that needs to be planned for if you want to pass the option for season tickets along to an heir and avoid the waiting list.

I am guessing most Redskins fans are dubious about the need to estate plan for a readily accessible asset. But, the Green Bay Packers have a reported 87,000 person waiting list. Just up 95; the Baltimore Ravens have 3,000 people paying to be on a restricted waiting list. The Pittsburgh Steelers who have a waitlist that will take approximately 50 year to reach the last person on the list.

To further complicate the issue, many teams require season ticket holders to own personal seat licenses (“PSL”). That is another asset. Most NFL teams have websites marketplaces where PSL owners can buy and sell PSLs .

For fans of teams with long waiting lists looking to pass their tickets down to the next generation, planning is essential.

Most NFL teams have transfer policies upon death, wherein the tickets must go to an individual or corporation. Some teams even have a transfer documents that a season ticket holder can name a person to transfer on the ticket upon the owner’s death, much like naming a beneficiary on a life insurance policy. But, if a person doesn’t complete a transfer document, some teams, like the Packers, have a specific policy that states:

Upon death of ticket holder:

  1. To surviving spouse; or if no spouse, the surviving children of a deceased ticket holder without authorization. (If children do not agree – no transfer.)
  2. If direction by deceased under will or specific writing to family devisees defined [as spouse and “blood” relatives who are not more than first cousins] but not to devisees who are not [spouses or “blood” relatives], even with direction.

In other words, a spouse will get the tickets, and you can bequeath the tickets to a relative no farther away than a first cousin. It is sort of like intestacy laws for Packers’ tickets.

But, what happens in families with more complicated family dynamics when there is no planning for the tickets. For example, a husband and wife and two children where the husband owns season tickets. The husband passes away. Typically, the wife will inherit the tickets. The wife remarries. Her new husband has two children and is a big NFL fan. She passes away without planning for transferring the tickets. Guess who gets them? The new husband. The children from the first marriage are left out. Surely that will create family discord. In fact, there are even lawsuits over who gets the tickets or at least the money derived from those tickets. (See Aaron v. Axel)

Not every person has NFL season tickets. However, a person might have frequent flyer miles or other loyalty rewards program that has a great value or some other unusual asset. For example, a relative of my wife has earned approximately 8+ million frequent flyer miles. Many organizations that offer reward programs have individual policies with regard to transferring those points upon death of the account holder. If concerned with how frequent flyer points are transferred, or, if they are even able to be transferred, check the organization’s transfer policies.

Green Bay season tickets are not found in everyone’s estate, but most people have other atypical assets. If that asset has great enough value, some estate planning associated with that asset beyond a simple clause in a will is needed.

Posted in Assets, Atypical Asset, Estate Planning, Intestate, Season Tickets, Wills | Leave a comment