Once the kids have finished college and (mostly) have their first career jobs, suddenly you and your partner may have more time to do things you’ve been wanting to do for years. It’s that dreamed of moment in your life when you are free of most childrearing responsibilities.1 Yet, it is also the time when parents are getting older, may have significant health issues, and may require more assistance with daily living. That wasn’t in the glossy brochures or on the retirement websites I’ve been looking at! And, eventually, you may need to figure out what needs to be done when a parent or loved one dies.
There are a number of good resources online for what to do immediately after someone passes away.2 In this blog I’m going to focus on some common financial questions I hear from clients when a parent or family member passes away.
If they have a will, do I need to hire a lawyer?
A will is a legal document that directs the settlement of one’s affairs after death. It usually specifies who will be in charge of making decisions (e.g., the Executor) after someone dies. It indicates beneficiaries such as a spouse/partner or family members, and may indicate who gets certain valuable assets.
A will, and other documents such as certain trusts, may reduce or simplify the amount of work required to settle an estate. However, it is often helpful to hire an estate planning attorney to provide guidance on settling the estate as they may be aware of certain steps that should be taken that would be helpful to the particular estate in question. They are also familiar with specific state, county and local laws that may apply to properly filing the death.
If they have a trust, there is no probate, right?
Having a will or trust does not guarantee that the estate can avoid probate. Probate is the legal process an estate must go through to transfer assets to beneficiaries. Usually the issue that causes assets to be probated is when it has not been adequately addressed by the deceased’s legal documents. For example, many people I have worked with have spent good money with an attorney establishing a trust that meets their particular needs. Then, the client does not fund the trust. Funding the trust can be key to ensuring that the assets avoid probate.
In addition, after a trust is created, sometimes new assets are created or received that are not put into or covered by the trust. If the asset is outside of a trust, there is a good possibility that it will become part of the probate process. This is not always a big problem, especially if the asset is relatively small or insignificant such as an automobile or a small boat.
What kind of taxes will I have to pay on my inheritance?
Unless your parents’ assets are greater than $13.61 million (limit for 2024), their estate should not be subject to federal estate taxes. However, many states, including Massachusetts, have their own estate tax. In MA estates greater than $2 million are now subject to a MA estate tax. Typically, these estate taxes are paid by the estate before received by beneficiaries. As such, beneficiaries usually do not have to pay taxes on the amount they receive.
We can settle their estate and close bank accounts in the next couple of months, right?
Even with well-designed estate plans, it can take about two years to settle a person’s estate. I’ve seen this a lot both with clients and with family members’ estates that I’ve been involved with. Unfortunately, it is not a quick process, especially for middle- and higher income individuals. The main thing you can do to expedite the settlement process is to make sure your parents have the basic building blocks in place: wills, durable powers of attorney, health care proxies and trust(s). Make sure they are up to date and confirm that the Executor is still willing and able to serve in this capacity.
If you have questions about Empty-Nesting and preparing for a smooth estate settlement process, give me a call. We’re not attorneys and do not give legal advice but are happy to refer you to an attorney that fits your needs. You can schedule a quick call with me by clicking HERE.
Lyman H. Jackson
· Investing as an Empty Nester https://planwithfps.com/blog/investing-as-an-empty-nester-whats-different
· Before someone passes away https://planwithfps.com/blog/before-someone-passes-away
· Empty Nesters: When your adult kids come home https://planwithfps.com/blog/empty-nesters-when-your-adult-kids-come-home
· Empty Nesters: Making the most of it https://planwithfps.com/blog/empty-nesters-making-the-most-of-it
1 If you’ve been reading my blogs on Empty Nesting you know that nowadays your adult children may require a lot more support and guidance than you were expecting. So, Empty Nesting doesn’t mean you are completely free of childrearing responsibilities but in general it does mean that you have more time to invest how you want. 2 AARP provides a good checklist at https://www.aarp.org/home-family/friends-family/info-2020/when-loved-one-dies-checklist.html
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. FPS provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client after entering into an advisory relationship. Information herein includes opinions and forward-looking statements that may not come to pass. Information is derived from sources believed to be reliable. Information is at a point in time and subject to change without notice. Such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.