Ep #122: Executor Preparedness - What to Do Before You Need To

Benjamin Haas | Jul 22, 2024

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00:00:03 Benjamin Haas:

Hi everyone and welcome to A/B Conversations where we will help you CFP your way out of it. A podcast where you get into the minds of a couple of Certified Financial Planners on how we think and feel about everyday financial planning questions and what should really matter most to you. A healthier financial life starts...now! Hi, Adam. Happy almost 4th of July. That's it.

00:00:33 Adam Werner:

I mean, we're gonna.

00:00:35 Benjamin Haas:

Yeah.

00:00:35 Adam Werner:

I was going to say when people are listening to this, it'll be well past it.

00:00:40 Benjamin Haas:

Well into the second half of the year. Time is flying by, that's usually the case. But no shortage of wonderful things for you and I to be discussing.

00:00:51 Adam Werner:

True.

00:00:52 Benjamin Haas:

So, today could be a little heavier on the spectrum of topics that we talk about, but I think those that listen to us frequently would know that we typically lean into things that are happening in our financial planning lives.

00:01:07 Adam Werner:

Yeah.

00:01:08 Benjamin Haas:

And right now as planners, we've been sadly dealing with helping our clients settle estates for their loved ones. So, they're in that role of executor or executrixes and we just want to speak to people that are in that position or better yet, know they may be in that position in the future because when it comes to settling an estate. There are things that we'll talk about today that hopefully take what could be a really emotional time, in a time of stress, like these things can feel complicated. They can feel cumbersome. What can they do on the front end to maybe help make that lift a little bit lighter during a very difficult time?

00:01:50 Adam Werner:

Yeah, it's interesting. Like you just said, usually is a very emotional time period and then to be saddled with the task of helping settle your loved one's estate on top of your own grieving and mourning can be an extremely difficult thing to deal with. And as you said, what we would consider a simple estate settlement process, it's still a process. There are still going to be steps to go through. You still need to have some level of organization. Odds are you'll run into hurdles, you'll run into issues, depending on how many different institutions you need to communicate with. At some point in our experience, somebody, somewhere along the way, may drop the ball for you that now you need to circle back with an institution and get updated information. So even in the best-case scenario, it can be a bit of a slog. To your point, our hope today is to try to give maybe some of those pitfalls, maybe give some of those tips and tricks on, here are things that you can try to work ahead on to make your future life as the executor a little bit easier. Some of those may be different hurdles, right? Cause, and we'll get into some of the details but dealing with, if we'll give the scenario we've seen a lot recently, which is clients or prospects helping their parents. Either their parents are aging, maybe health is declining, or their parents have recently passed and now they are tasked with settling this estate. But a lot of that proactive planning work, while your parents are still living, can often be awkward conversations at best.

00:03:40 Benjamin Haas:

Tough, tough communications, for sure.

00:03:42 Adam Werner:

Yeah, so, we'll try to set the framework on things people can think ahead on if they know they're going to be the executor or the executrix. Again, just try to make that estate settlement process as smooth as possible.

00:03:57 Benjamin Haas:

So, if that's the goal, then my mind is we should probably start with kind of defining the things that go into estate settlement and when we say it could feel complicated or cumbersome, what do we really mean by that? Just think logistics of property of ownership of property things, we accumulate so much stuff. And if you know, anybody out there listening, think of yourself as if I had to pack up everything in my house and move right now, like how daunting that might feel when somebody passes away, especially after the second death and now you've got a child. It's probably 80, could be 90 years' worth of mom and dad's stuff. It's going to take time. It's going to take effort.

00:04:44 Adam Werner:

Yeah.

00:04:45 Benjamin Haas:

That in itself can feel really cumbersome and complicated right off the bat and that's not even bringing up some of the financial stuff.

00:04:53 Adam Werner:

So, to expand on that, thinking of physical property, not necessarily things, but I'll say the larger pieces of property. Second homes, vacation properties, vehicles, family heirlooms, jewelry, things that often do get listed in people's wills as I want this person in my family to get this item, that is all well and good, but that doesn't necessarily capture the rest, all of the things that are just people's belongings that aren't going to get willed to the next of kin. That in and of itself, we've heard the horror stories of I'll say the adult children helping their parents after the fact. You said the word cumbersome. I think that's probably the best way to put it. It's a process to go through. So maybe this is jumping ahead, but having the proactive conversation with your loved one in advance to just, again, get some clarity on if there are specific people you would want specific items to go to, let's document that in advance. If there are things that, husband pre deceased the wife by a decade, but she didn't go through the process of going through any of his things. She has now passed and now their children are going through both of their parents' belongings. 80 years' worth of stuff. Getting ahead of some of that. Again, that's somewhat the awkward conversation.

00:06:29 Benjamin Haas:

I don't even know how to suggest having a conversation like that but thank you for sharing that. That is the awareness that at some point, these things will have to happen. And I would like to believe that if there is someone there, whether it's a child, grandchild, sibling, whomever it is, bring awareness to it. I would want to know, well, what did mom and dad, what would they have really wanted here instead of avoiding the conversation? I'm going to piggyback on your comment. It's of course that way with a lot of financial stuff too, that everything needs to be settled, right? Everything needs to be put in its place and it needs to be moved to a new place. So, I think you and I have a lot of experiences. We had one last week, her husband had passed away. I think it was close to 14 years ago. She's not sure what was settled or was not and there's literally a grocery bag of statements, documents, and that's not passing any judgment whatsoever, but not a great understanding. I think it had been the idea of generating wealth and protecting oneself was to spread things out as much as possible. I've got this bank for this reason, this bank, this bank, this bank. I've got different financial institutions with investments here and there. Grandkids had accounts, Christmas funds, like who knows the laundry list. When we are saying, hey, now it's the executor's job to settle this estate. Every single one of those accounts has to be accounted for. It has we need date of death values. We need to find beneficiaries if there are some. We are going to do paperwork over and over and over again and by the way, all these institutions may have a different process to do that. I'm overwhelmed just saying all of that.

00:08:12 Adam Werner:

Yeah, and so that is a great example of where we see the biggest impact just from a processing standpoint for the executor where, there may be beneficiaries listed on all these financial accounts. That certainly is better than not having any beneficiaries listed on an account, but there is still a process to go through each institution is going to have their own paperwork their own process to go through claims. You spread that out over, 5, 6, 10 different organizations, that's probably the extreme, but then you throw in multiple beneficiaries, you could be having to do dozens of packets of paperwork to settle accounts that could have, or maybe in our opinion should have been consolidated. So, that old school thinking of I'm going to put all my eggs in all these different baskets along the way is great, but it can lead to a much more cumbersome and complicated process later in life. You could make the argument to try to streamline that, try to simplify, and I know anybody who listens to us knows that simplification is a huge philosophy of ours. If you can make things simpler, not only for yourself, but for your next generation, there's probably a lot of merit to that.

00:09:36 Benjamin Haas:

And we could go even more granular. Now I'm kind of thinking off the cuff here, but when I think back to property and bills and things that go on around the house, all of that stuff has to be shut off. Like, income streams have to be shut off. Automatic payments, if there were, maybe that's good, maybe that's bad, but like, how did mom and dad pay for this stuff? Is it auto paid? Is it not? How do I have to contact all these institutions? The more that can be known on the front end, maybe it's just to, again, prepare oneself for this. But there certainly could be a day in the conversation on how can we streamline some of this so that when that day comes, and for some people it's not, they passed away in some of these cases, we were dealing with clients whose parents now have unfortunately lost the mental capacity to handle this themselves. Right. So now they were thrust into this while this person's still alive. And, you know, maybe there's a whole other set. I'm sure there's a whole other set of emotions with that. But, in some ways, maybe they learned a little bit about what mom and dad had going on at that time, but in the absence of that, there may not be that opportunity to know. So maybe encourage mom and dad to start jotting these things down or create some space and time. Hey, you know, how do you handle these things that if I need to do that for you, I understand how you want to handle it.

00:10:53 Adam Werner:

Yeah, and we're obviously speaking from experience. We see this stuff on a very regular basis. So, from our standpoint, I don't want to oversimplify, but it can be relatively straightforward to proactively plan in advance if there is a potentially complicated situation with many different accounts in many different places, going through that process to just map out, here's what here's accounts that can be consolidated, right? It all comes down to tax treatment. If you have pretax retirement accounts, those should be able to be combined. If you have multiple non retirement accounts, those could be combined. Just to simplify that settlement process, all of that paperwork, the less, the lower the number of different moving pieces you have, the easier it should be for your executor to process all of that at your passing.

00:11:51 Benjamin Haas:

Yeah, there's just so much that goes into this. Let's move to the helping part of this and I know we gave little suggestions here and there. Right off the bat if you know you're going to be in this situation, let's make a list. You and I off the cuff here like five, six, however many things it is that go through this checklist. If you need to have conversations, maybe we can help you with this. If we're working together, if we're not fine, find somebody to help have that conversation or at least plant the seeds here because like many things in life, ignoring it does not mean that it will go away. If you're in this position at some point, you're going to have to deal with these things. So, what are the best practices for an executor helping a parent or a loved one while they're still alive?

00:12:31 Adam Werner:

Number one is do they have estate documents already prepared? And if so, great. When was the last time they were updated? We've talked to many different estate attorneys reviewing those every few years just to make sure they're still accurate, make sure that it still conforms to current legislation and current rules in your state. But that would be number one. Just are the documents current? Are there updates that need to be made? And does the executor know where these physical copies are stored so that when the time comes and you need to go through that process? That it doesn't turn into the, I've used this term before, the estate settlement scavenger hunt, where now you're just trying to track down, do these accounts still exist. Your example of the person that came in the other week with a grocery bag full of statements from the last 14 years. A lot of it just wasn't current anymore, but they were so afraid to get rid of something that may have been important that often then leads to even more confusion because now you're in this scenario, you're gone as the person who saved all of these documents, your next of kin is going to look at all of this and try to figure out, is that current or is that something old? Now you got to reach out to the companies and find out, did my parents have an account here? That's the scavenger hunt that we would want to help people avoid, going through that process. So having up to date estate documents, I think is number one.

00:14:05 Benjamin Haas:

Yeah, like you said, know where they are. I'm going to piggyback on that one when you said make them current, what popped into my mind was historically something that we see that we think makes things more complicated than they need to be. And that's the executor of my will is going to be all three of my children because we all love our children equally and that seems maybe in thought to be the fair way to handle it. I will share with you, you are creating more work than is probably necessary because if that person's job is to execute on that will, open the estate account, move everything in there, cancel this, cancel that, you're now having to have three signatures where one would have done. Let's create another scenario where one of those children doesn't live anywhere close to here. We see many people where children, grandchildren have spread all over the country and now that person, I'm dealing with it, right? On another estate where the executor does not live here, has the opportunity to come in, thankfully. But if that wasn't the case, you really are creating a complication that may not be necessary. Name one person. Pick the most responsible or the most organized of the three, of the two, of the six, however many there are. I would say best practice is to have one person one point person to keep that organized and to execute. That's what the rule and the name is of that person

00:15:28 Adam Werner:

Yeah, and I think I know it's written into so many different documents, but of course you would want to have a backup that God forbid something happened to that person before you, or push comes to shove in the moment that person can say I don't want to do this job. You should have a backup named but backup is very different than naming multiple in the first place. To your point, simplify that part of the process, name one person just so that it's crystal clear who needs to take charge, execute on that process. So, another thing I'll add is similar to the make sure your state documents are updated. Is on your financial accounts, make sure your beneficiaries, number one, do you have beneficiaries listed on your financial accounts, your investment accounts, and number two, are they still accurate? Do you need to make updates there? Those are very simple things to change and update in real time because once you're gone, that is set in stone. You're not going back and changing that. If you didn't update to add, I don't know, new grandchild. If you were listing grandchildren on an account or you had an ex-spouse listed as your primary beneficiary and you never updated it. We've heard that horror story. We've seen it. Just things like that. Make sure you have beneficiaries listed, make sure they're still accurate. Again, similar to the vein of your estate documents.

00:16:51 Benjamin Haas:

And if somebody got married, you know name updates, I'm dealing with one of those right now. Now there needs to be like these name change forms, and now there's extra steps to this estate settlement process because you have to prove you're the same person. Maybe move a little bit from some of what we'd call those fundamental things to strategic things. I know we talked about the idea of consolidation a little bit before, right? That's just going to reduce the amount of work that needs to go on the back end. But if mom or dad, survivor, I keep using the example of a child is helping surviving parent. If they seem to be or you could assess or even better If you have a financial planner assess that they are in a stable financial position, let's have conversations about gifting. Let's have conversations about how estate taxes work and how income taxes will work for whoever's going to be the beneficiary of that account because there certainly are things that we could talk about doing to not only make the workload of the estate less, but try to make it more efficient from our standpoint of financial planning. The family wealth going from one generation to the next, there's absolutely space for those conversations and I don't know, maybe you have other thoughts on federal or state taxes.

00:18:05 Adam Werner:

Yeah, I'll try not to get too deep in the weeds, but I think that's a really good one. I think for most people, they're not going to hit that estate tax threshold, that exemption right now is $13.6 million or $13.61 million, something like that. So, if you pass away with less than $13.6 million, you're not going to pay any federal estate taxes. Now that's again try to stay high level. That is potentially going to change in 2026, depending on the next election, depending on change of legislation, those rules are set to potentially change. In the state of Pennsylvania, where we are, there is no exemption on the size of your estate before Pennsylvania starts to take their share of that inheritance. So, for direct heirs of your children or grandchildren, it's four and a half percent. So, you pass away with a million dollars and that's going to get spread out to your direct heirs. $45,000 is going to go to the state. You can't avoid it. It's increases if you go beyond that, I'll say the direct lineage. So, if you're giving to siblings, it's 12%. Anybody else is four, I think it's 14 and a half, or maybe it's 15%, but it's in that range for 14% if you're giving to anybody else that this, the state is going to get. So, to your point, if it is later in life and you're working with a planner and there's a very good feeling that this person is not going to outlive their savings. It's a good idea to start to distribute gift while you're living and that can be for many different reasons. See the benefit of that gift while you're living. We've heard that so many different times and it's strongly encouraged, but then you start to shrink that size of your taxable estate. Again, while you're living, get some of that money out of your state just to make things more efficient moving forward.

00:19:58 Benjamin Haas:

Yeah, I love that so much. I think where there are those opportunities, it just takes good communication. If there's a good communication with an estate attorney, with a tax preparer, and with somebody like us. There really can be a lot more strategy that would probably go way deeper than where we are today. But the one other thing of best practice is I want to float out there and see what you have to say about this too because of a state tax limits and again, who knows where rules go? We can go back 20 years and the threshold of $13.6 million was like a million or two million. We will certainly come across people, parents who may have done a higher level of planning at some point and they have trusts. They have things that they have tried to proactively do to mitigate maybe some of these estate taxes or try to make the settlement go a little bit easier or to try to make sure that somebody, an heir, was protected either from themselves or if they have a special needs situation. So, if there is that type of stuff, I would say it's absolutely a best practice for you as the executor to understand what that says, right? Trust language is not a generic cookie cutter, boiler plate thing. Understand what kind of trust it is, how it would be distributed, under what circumstances. Are their taxes to be considered there? I don't want to make this a more complicated podcast than it needs to be. But we have come across more and more trusts and that has some sensitivity to it. So better to know on the front end to be surprised on the backend.

00:21:37 Adam Werner:

Yeah. Like you said, those are completely customizable documents, right? The trust documents themselves. We clearly haven't seen any that are alike. They may be similar in kind of the feeling or what they're trying to communicate but they are completely customizable. So yes, having a good understanding on how things are to be distributed. What are those provisions, right? Because oftentimes the reason somebody would have a trust is for more control when they are gone. So, you can write in any number of little caveats that your executor or whoever that trustee will be of this trust once you're gone, will have to execute on that. We'll have to follow through on that. So just again, transparency and clear communication is always beneficial when it comes to potentially very complicated, financial situations where money needs to be moved. Official documents, there are processes that need to be followed for this to work out smoothly. The more you can understand in advance, prepare for in advance and if there are changes that need to be made or tweaks that could be made to just make the process a little bit smoother in the future. You have to do that while that person is living because once they're gone, the cement has dried and you are left with whatever it does at that point.

00:23:08 Benjamin Haas:

Let's take that one step further and then I'll ask you if you have anything else to add before we wrap this up. We know through our experience that all these different institutions where money may be held will have their own claims process. And more often than not, if you have the executor, they're now going to submit that death certificate and they're going to get this packet of information on what needs to happen next. Let's just say for instance, that that executor has siblings. I saw a claim form on a financial product last week that had 10 different options on how to select and claim that money. I'm in the business. I've been in the business for a long time. I look at that form and I go, holy crap. Like, where do I begin and what is going to be best here to this person? Now I'm trying to imagine that executor explaining to her siblings. Hey, you might want to be careful with this because whether you took option one or ten, it's like going through one of those children's books where like you create your own storyline where if you want to choose your own adventure. Yeah, and I'll go back to page 30. Now you got to open this story now you go to page 90. It's all over the place and I know that depending on which checkbox there is, there are completely different tax consequences to these check boxes and it is not crystal clear. I guess that's my story You know, my example here of if you're going to be in this position, people are going to rely on you, get some help, right? Don't feel like you have to go blind into that and have somebody maybe help you explain and understand what these options are at the end of the day for claiming this property because there are so many different tax consequences to different vehicles, different types of accounts and a lot of that you can't undo.

00:24:52 Adam Werner:

Yeah. Oftentimes, one of those options So we're the one, I know we were talking about there were several annuities involved and annuities in and of themselves are complicated products, but when it comes to the estate settlement side of things that list of options, usually that first one is lump sum and that's the simplest, right? Just send me the check and then I'll deal with it from there. I don't have to do anything else. They're going to send me a check, but that can have the unintended consequence of now that's going to potentially trigger depending on the size of the account that can trigger a sizable tax bill that you may or may not be prepared for based on your situation and what makes it even worse is those options may be similar from company to company. Again, just say there's two different annuities. They're the same tax treatment, but with different companies all those options in theory may be the same but they may all use slightly different verbiage to explain the different options. So even just comparing form to form, it's again, you said it we've been in this business quite a while. We've seen a lot of these forms, but even there are at times where we have to call the company and ask very pointed questions just to make sure to avoid those unintended consequences, that it's not just easy to say, well, I chose this option on this form, let me just replicate it over here when they use different terminology and it just gets extremely confusing. For somebody who does not live and breathe everything financial planning and investments and paperwork. I can only imagine how overwhelming that can be in the moment and having to deal with all of that at the same time that you're probably grieving a loss of a loved one as well.

00:26:36 Benjamin Haas:

So, I guess those are the two takeaways. If there's an opportunity on the front end to create communication, that's best-case scenario, try to understand things, try to talk with your loved ones. Put us in that position where we can help you maybe have some of those conversations on the front end and then do the best you can to kind of make sure that you understand what exists and what you will be responsible for handling. The more you can know on the front end, the better, but it all comes back to communication.

00:27:07 Adam Werner:

Clear is kind a lot.

00:27:08 Benjamin Haas:

Clear is kind a lot and heavy. I know a lot of people at some point in their life are going to have to go through it, so just don't go at it alone. You don't have to.

00:27:19 Adam Werner:

We are here to help for better or for worse. We've seen a lot of it already. So even if it's something as simple as doing an assessment on the front end before somebody passes. We are absolutely fine to be a part of that process, even if it's just to check the box and say yes, everything you have set up is exactly as it should be, or if there are tweaks to be made, you have time to make those corrections, in advance. Lean on us, sir.

00:27:47 Benjamin Haas:

You got it. Appreciate your help.

00:27:48 Adam Werner:

Yeah. All right. Thanks.

00:27:51 Benjamin Haas:

Bye.

00:27:52 Adam Werner:

Bye.

00:27:58 Benjamin Haas:

Hey, Adam and I really appreciate you tuning in. Please note that the opinions we voiced in the show are for general information only, and are not intended to provide specific recommendations for any individual to determine which strategies or investments may be most appropriate for you. Consult with your attorney, your accountant and financial advisor or tax advisor prior to making any decisions or investing. Thanks for listening!

Investment Advice offered through Great Valley Advisor Group, a Registered Investment Advisor. Great Valley Advisor Group and Haas Financial Group are separate entities. This is not intended to be used as tax or legal advice. Please consult a tax or legal professional for specific information and advice.

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Ep #122: Executor Preparedness - What to Do Before You Need To