Introduction: A daughter appointed to handle her deceased Mom’s $700,000 estate recently asked me if she could just distribute everything to herself and her brother. She didn’t want to go through all of the gobbeldey gook and wanted to get this all done in 10 days.
Her Mom had a living trust so no court probate proceeding was needed and she and her one sibling got along fine. I told Sylvia (not her real name) she could, but she probably shouldn’t! The death of a parent is an emotional situation but, if the parent has any significant assets, then there are a myriad of other important things that are also going to be an issue.
What Needs to be Done: First, Sylvia is going to need to identify and take control of all of the bank and securities accounts. Then she’s going to need to get everything valued, dispose or distribute the personal effects, get the creditors paid (even if it’s just the electric and phone company), review and probably liquidate the securities accounts, have the CPA prepare the final tax return, get any remaining taxes paid, and then get everyone to agree to the distribution. So there’s a lot that is going to go on.
Level of Formality: In handling all of this, Sylvia can take one of three approaches: super formal, semi-formal, and informal. Super formal is going to be the most expensive and take the longest; obviously, informal is at the other end of the spectrum. Super formal will involve court approval of what Sylvia has done to accomplish all of her tasks. Informal will be the approach Sylvia was first advocating. Semi-formal, which is what I typically advise clients in a family friendly situation to follow would involve procedures to (1) allow all of the siblings to review Sylvia’s actions and transactions so that they feel “comfortable” that they are receiving the appropriate amount from the estate and that nothing has been skimmed and (2) avoid open ended liability for Sylvia, i.e. cut off Sylvia’s liability to her siblings (to the extent that liability can ever be cut off).
Why should Sylvia take the semi-formal approach in a family friendly environment? She needs to recognize that she is taking a job (successor trustee of her Mom’s Living Trust) that is fraught with responsibility. Responsibility is just another way of saying liability–liability to her siblings, to the creditors, and to all of the different taxing authorities. If something goes wrong or one of her siblings thinks something went wrong there could be a lawsuit. Most people in Sylvia’s shoes would initially say that there is nothing to worry about. But there is!
Illustration: I once had a case in which the daughter was handling the settling of the Dad’s estate. She had one brother and one sister and they were the only three beneficiaries of the estate. I did everything I could to get her to follow the semi-formal approach but she insisted on being quite informal. By the time she was ready to distribute, her sister had died and she was now dealing with the ex-brother in law and the deceased sister’s two children. They wanted to see all of the books and records of the trust. Things dragged on, court lawsuits were involved, and attorney’s fees mounted. Over $150,000 of attorney’s fees later, the court ruled that she had done nothing wrong. Much of this could have been avoided if she had followed my advice and hadn’t insisted on being informal.
Moral: The moral of the story is that the friendly family members you are dealing with today may not be the ones who you are dealing with when you are ready to distribute and those new people may not be as friendly. How many people can say they get along with their sibling and, if they do, can say they get along just as well with their in-law as they do with their sibling? You don’t necessarily need to get court approval for everything, but you should provide complete and accurate books, records, and financial reports so that you can get a release from liability and close things out.