Archive for September, 2012
PERSONAL REPRESENTATIVE’S PERSONAL LIABILITY FOR PAYING TAXES OWED BY THE DECEDENT
A Personal Representative of an estate (“PR”) is personally liable for paying a decedent’s outstanding tax bills. This would include income taxes, gift taxes or estate taxes that may be owed by the decedent at the date of his or her death. For this reason, it is important that a Personal Representative engage a CPA, in addition to a probate attorney, for assistance in resolving potential tax issues.
A Personal Representative must be careful not to distribute any portion of the estate to beneficiaries before all federal taxes are paid, because he or she could be held personally liable to the extent of that distribution. It is the better practice not to make any distributions until tax issues have been identified and resolved. The costs of estate administration, which include compensation of Personal Representatives and their attorneys, along with reasonable funeral expenses not to exceed $6,000, do take priority over a claim by the IRS. Nevertheless, any family member clamoring to become a PR and take “control” of an estate should be aware of the potential tax liability that comes with obtaining that control.
What is even scarier is that, because failing to pay income taxes is deemed to be a breach of the personal representative’s fiduciary duty, the PR cannot dodge a claim by the IRS by declaring bankruptcy. A breach of fiduciary duty judgment against a Personal Representative generally is not dischargeable in bankruptcy. These are important considerations before you sign on to be PR of an estate.
ANOTHER ONLINE SNAFU
So, you are tired of me getting up on a soap box preaching about the evils of using online services to prepare Estate Planning documents. Sorry, here I go again!
We recently had a client bring into the office an online power of attorney that was prepared and signed on July 31, 2012. This is precisely ten months after a substantial change in the Florida power of attorney law went into effect (and more than a year after the change was announced by the Florida Legislature). This online document did not contain the language necessary to make the power of attorney valid under the new law (special new language to grant “gifting” powers). This meant that the power of attorney was completely worthless and the client was unable to use it to accomplish the purpose for which it had been written.
If the online companies have not gotten their act together to change their forms in over ten months, can you really rely upon them? I don’t think so. To put it bluntly, based upon what we are seeing, only a fool would rely on online document preparation services to accomplish their estate planning goals.
JOINT BANK ACCOUNTS
We constantly preach that how an asset is titled to is the most important factor in determining whether an estate plan will work. Many people do not give sufficient thought to coordinating the way their assets are titled with the way they want those assets to be handled in the event of a disability or after death. A glaring example is the “joint bank account.”
Florida law provides that any deposit or account made in the name of two persons who are husband and wife shall be considered a tenancy by the entireties unless otherwise specified in writing. One must be very careful when opening a bank account to review the bank’s form to make certain that the box checked “tenancy by the entireties” is checked, because if it is not, or if a different box is checked, then this presumption likely will disappear. What is important for married couples to understand is that bank accounts owned as tenancy by the entireties are owned by both spouses. This means that one spouse may not transfer money from such an account without the consent of the other spouse. On the other hand, if the accounts were joint tenancies with the right of survivorship, either spouse could terminate that joint tenancy by transferring the funds to another account or simply by withdrawing the funds altogether.
So, you can see that checking the right (or wrong) box on what appears to be a fairly harmless bank form can make a big difference in the respective rights of a husband and wife to the funds in that account.
PROFESSIONAL GUARDIANS: ADVANTAGES AND DISADVANTAGES
A professional guardian is exactly what it sounds like: a person whose job is to serve as guardian for people who are legally incapacitated and need a guardianship. Like other guardians, a professional guardian is appointed by a court to watch over an individual’s person and/or property. This can be done either voluntarily or involuntarily after the court decides that the individual needs a guardian because she is not able to take care of herself and/or her property.
There are certainly advantages to having a professional guardian serve instead of a relative or friend of the person who needs a guardian (the “ward”). Unlike individual guardians, professional guardians must meet certain requirements before they can start taking on wards, such as completing at least forty hours of education, posting a bond of at least $50,000 with the clerk of court, and passing background and credit checks. Experienced professional guardians have more knowledge of the duties of guardianship and are more familiar with the court process than most individuals. Many of them are also accustomed to dealing with or, when necessary, ignoring fighting family members to do what is best for the ward.
However, there are also drawbacks to the appointment of a professional guardian over a trusted friend or family member. First, professional guardians, unlike other guardians, do not serve for free; reasonable fees for their time will be paid from the assets of the ward. Second, professional guardians often have dozens of wards and are only required to visit (or send a staff member to visit) each ward in person once every three months. Although non-professional guardians do not have any visitation requirements, most of them are naturally inclined to visit and check on the ward frequently.
Professional guardians are most often appointed in two situations. The first is where the ward does not have any friends or family members who are willing to serve as guardian. The second is the exact opposite scenario; the ward has too many people fighting over who will take care of her and a neutral third party is needed. In these types of cases, professional guardians are the best (or only) option. But remember that you have the power to designate the person who you wish to be your guardian, or even avoid guardianship altogether, through lifetime planning.