5 Tips to Reduce Beneficiary Stress Levels

Failing to fully plan can tie up your client’s estate in probate for months, even if they have a current will.

By Ilene Slatko
Ilene Slatko
Ilene Slatko

Many people think that an estate needs to be probated only in the absence of a will, and that they’re all set if they have a will. But the reality is, that’s not the only oversight or circumstance that can force families to go down that arduous path. Other conditions that could lead to probate include:

  • Assets are titled in the decedent’s (deceased person’s) name alone.
  • Assets are owned as a tenant in common (TIC) with one or more other people. A TIC holds property together with other TICs in equal shares, or if otherwise, as stated in the property title. However, unlike some other forms of ownership, inheritance is not automatic. Therefore, when the decedent dies, his or her share becomes subject to probate.
  • Assets are payable to the estate either because the estate is the designated beneficiary, or the asset has no designated beneficiary. Life insurance and employee benefits are good examples.
  • Amounts are owed to the decedent before death but paid after death. Examples include the decedent’s last paycheck, and other amounts due to the decedent’s estate by reason of his or her death, such as an award from a wrongful death lawsuit.
  • Personal property has not specifically been named as a bequest in the will or has not been placed in a revocable trust.
  • There are legally valid objections to the will, such as contested ownership, which the court must rule on.

Probate, which involves the court-managed distribution of assets, is difficult because it can be a long and costly process. In some cases, we can take proactive steps to avoid probate; in other cases, the goal is to lessen the time and cost of the process.

Lessening the burden

For decades now, you have cultivated relationships with your clients. As they age, the inevitable becomes closer. If they and their beneficiaries aren’t prepared, this will add a frustrating burden to the pain of losing a loved one.

The first issue the beneficiaries will face is whether the estate is a probate estate. How property is titled is the primary factor, although many states will allow a “small” estate to escape lengthy probate should other conditions be met. Each state has different definitions of small: Some states allow beneficiaries to claim property with a sworn statement called a small estate affidavit, which may avoid probate entirely; other states provide simplified court procedures for small estates.

Remember, any asset that is not conveyed via contract (title) or by having a named beneficiary will make the estate a probate estate. There are steps you can help clients take, such as naming beneficiaries or setting up trusts, as appropriate, to reduce the size and complexity of the estate. However, beyond the question of probate lie several suggestions designed to help you assist beneficiaries in settling the estate and final bills in a timely and contentious-free manner.

When beneficiaries aren’t named

It is critical to remember that in the absence of payable on death (POD) or transfer on death (TOD) beneficiaries, all bank and investment accounts are frozen upon notification or knowledge of a death. They’ll remain frozen pending letters of appointment of a personal representative (PR) or executor, and a certified copy of the death certificate.

“If the estate is a probate estate, the court may take months to issue the letter of appointment.”

If the estate is a probate estate, the court may take months to issue the letter of appointment. In the meantime, burial costs and other final expenses may have been advanced by family members who would like to be repaid by the estate.

How does this play out in real life?

I have a client who waited for seven months after the death of a family member until the court named her as the personal representative. In that time, two property tax bills (issued semi-annually), came due. In this particular jurisdiction, missing two tax payments necessitates a tax lien sale. While we waited on tenterhooks for the court to issue its ruling, the date of the sale came perilously close.

Ultimately, the attorney advanced the funds to stave off the tax sale. When invoices came and went unpaid for various utilities, the attorney also advanced the funds to pay them. My client had also made the funeral arrangements and signed the contract for the funeral, expecting the funds to be more readily available. It took having the lawyer send a cease-and-desist letter before the funeral home backed off and waited for the court to act.

In short, failure to properly plan resulted in a lot of money and time spent. Not to mention the angst of waiting for that all-important court document.

Celebrities are not immune to probate issues

Tobacco heiress Doris Duke left her $1.2 billion fortune, including an extensive art and historic real estate holdings, to her foundation upon her death in 1993. She had named her butler as co-executor of her estate and gave him a powerful seat on the board of the foundation — roles he was not equipped to perform. Claims of mismanagement triggered a series of lawsuits that lasted for four years and racked up millions of dollars in legal fees. The butler, an uneducated alcoholic, also agreed to a flat $4.5 million plus $500,000 a year to relinquish his co-executor and board roles but soon died himself.

Encourage your clients to carefully consider who they’ll named in their estate documents to carry out financial oversight. It is sometimes preferable to name a bank or other financial institution as trustee over the funds. In Duke’s case, this might have nullified legal issues and fees.

Pop star Michael Jackson, who died in 2009, had put all the right pieces in place: a will, a living (revocable) trust, guardians for his minor children, and a smart legal team. The catch? He never placed his assets into the trust, turning his reported $500 million estate into a probate nightmare. In May 2021, the court ruled on the IRS travails that the estate underwent for near a dozen years. At that time, Jackson’s attorney suggested that the case might move out of probate court within 18 months.

Since your average client won’t have to contend with valuing their copyrights and likeness, it should be a little easier for them to get their estates in order. Let’s discuss practical tips for them to put in place now to help avoid issues later for their beneficiaries.

Tip 1: Pre-pay funeral expenses.

Encourage your clients to decide what they want for their funeral and to prepay those costs now. Then they should have a conversation with family members to let them know they’ve already made these decisions and paid the expenses.

That leads us to our next tip, which is overarching in its impact.

Tip 2: Create an instructional document and share it with appropriate family members.

Encourage your clients to create a document that outlines instructions to follow upon their death: who to call, who their various advisors are, their final wishes for a funeral and burial, and a list of account numbers and beneficiaries of each account. Most importantly, this document should be the genesis of a family conversation so there are no (or fewer) issues upon your client’s death.

Although these conversations can be gut-wrenching, they are important. Help guide your clients by reminding them that this is their opportunity to explain why they’re making certain bequests, what they see as the family values, and their hopes for the family to continue those values after they die.

This is also the time to discuss any healthcare directives or organ transplant decisions your client has made.

Tip 3: Create a separate bank account for other final expenses and name the executor or intended personal representative as beneficiary.

As previously mentioned, financial institutions must freeze accounts upon a death. While I always recommend that TOD or POD beneficiaries be named to reduce the size of the taxable estate, this tip is very specific in its account size and purpose. Although TOD/POD beneficiaries may have access to funds before a PR is named, they may also be looking for the estate to repay them for any final costs they are willing to cover. Remember, too, that the timing here can be long. Therefore, this tip is designed to cover those final expenses that would otherwise be paid by the estate, but which might be due long before the court appoints a PR.

Tip 4: Consolidate by transferring any outlying investments into one account.

You have the majority of your client’s assets under your management. But if you don’t have all of their assets, the information trail on those other assets will go cold upon their death. Until the court rules and paperwork has been submitted (death certificate, letter of appointment, and other account transfer or disposition documents), any investment splits, spinoffs, or paid dividends are effectively withheld from the beneficiaries. You can simplify their lives by encouraging your client to transfer all investments to you, their advisor, now.

Tip 5: Understand your role.

One of the items the court will need, along with the formal petition to probate the estate, is an accounting of assets and the date of death valuations. By law, it is also permissible to use valuations up to six months post-death – whichever are more favorable for the estate and taxes. You will probably be asked to provide those valuations, too. You will eventually help facilitate the distribution of estate assets, as per the will or trust. Be prepared to work with the attorney, the PR, or CPA in wrapping up the estate.

Holding onto AUM

Hopefully, your client has already introduced you to several of his or her family members. If not, this is the time to ask for those introductions. You will be the trusted resource when your client dies.

By putting these tips into practice, you can guide your clients and help protect their beneficiaries from undue delays and missteps. And if you keep those trusted family relationships going, perhaps you’ll be asked to continue to maintain those assets under management.

llene Slatko, CEO and founder of DSS Consulting, coaches clients on building strong financial decision-making skills. Her focus is most often women dealing with the long-tail of a divorce or the death of a loved one. Ilene’s new project, Metamorphosis, is an e-learning platform designed specifically to guide subscribers through pre-retirement and retirement issues. She spent over 25 years as a financial advisor and built her business through her seminar series, “Women and Their Money.” Ilene is also a subject-matter expert on the Federal Employees Retirement System (FERS) and speaks to audiences across the civil-service spectrum.

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