By Michael Mikonis

Key Takeaways:

• Banks and investment institutions will freeze accounts of deceased account owners; plan ahead to make sure the estate executor or a trustee will have the legal authority to access these accounts as soon as possible.

• Make sure Social Security Administration and Pension companies are informed promptly.

• Do not sell or give away decedents’ assets without having first met with their attorney; you may not be aware if there are special instructions for how those assets should be handled.

• Do not use the decedent’s property, as it may no longer be insured.

• Make sure insurance for high-ticket items stays in force.

• Be careful about selecting who will handle settling your estate.

A key component within the overall estate planning process is estate administration. Estate administration is the procedure by which a person’s financial dealings are managed and distributed to their heirs after they die. In other words, when a person with assets and property dies is when the estate administration process begins for the executor of the estate.

So, what should the executor be thinking about? Losing someone you love and care about is heartbreaking. This state of mind may affect your judgment. Thus, it is only natural to forget about the legal implications of one’s actions while grieving. With the hopes that an already difficult time is not complicated any further, we bring to light 8 commonly forgotten or mishandled estate administration mistakes to your attention.

1)     A word of caution about calling the decedent's bank: 

Once you notify the bank of the person who passed away, by law, the bank will have to freeze accounts belonging to the decedent. Naturally, this will cut off online access and stop automatic bill payments.

It may not sound very serious, but it is essential to remember that getting a Will admitted into court for probate and the executor appointed takes time. Suppose the decedent's bank accounts and credit cards are frozen; this will create a liquidity crunch between when bank accounts and credit cards are frozen and when an authorized executor is allowed legal access.

One possible solution is to have a bank account owned by a Trust, in which case whoever the decedent named as a Trustee would have immediate access to the account. In this case, the bank account would not be frozen, and utilities would continue to get paid, and the estate sale will not have to be held by candlelight.

Another possible solution would be to have a joint account with a person who will settle the estate, but caution needs to be taken – both account owners will have to pay taxes on interest earned, and if the surviving account owner withdraws more than the annual gift exclusion amount which is $17,000 for 2023 – you may have to file a gift tax return.  Additionally, depending on the type of joint ownership selected, the account may become partially or entirely the property of the other joint owner.  If the account is intended to be given to someone else, that may cause a lot of complications.

 2)     Be cautious about calling the decedent’s investment account custodians:

Similar to what banks do, once an investment company is notified of the account owner’s death, all trading activity is suspended in the account. That means no buying, selling, or transfers in/out of the account will take place in order to protect the decedent’s account from any kind of malicious activity. While this sounds harmless at first glance, after all, who really needs to trade a dead person’s account – there is the risk of significant losses if the stock market takes a freefall.

In an actively managed account, an investment advisor may want to sell some or all holdings but may not be able to do so because the account custodian froze the account after being notified of the account owner’s death. Trading in the account cannot resume until legal authority is established, which could take time (weeks or even months) if there are complications in settling the estate.

Naturally, if the account remains “frozen” in a falling market, it may result in a smaller inheritance. A possible solution would be to have all the required documentation handy and ready to go to expedite the process. You might also consider making a “Transfer-On-Death” election on non-retirement accounts or place your assets in a trust where the Trustee would have immediate authority over the account.

3)     Do not delay informing Social Security or the Pension company:

After the recipient of Social Security benefits passes away, their benefits stop. Suppose the Social Security Administration is not informed before the next payment arrives. The decedent’s estate will have to pay it back - and if the delay is intentional - post-mortem payments can result in legal obligations, fees, and fines, not to mention the hassle of having to pay it all back.

It is simply not worth the hassle and should be handled promptly. Similar consideration should be given to Pension Payments, as this stream of income may stop, or the amount needs to be adjusted to match survivorship elections. Luckily nowadays, Funeral Homes will notify Social Security Administration. Still, you must provide the decedent’s Social Security number to them, and it would be wise to double-check if the Funeral Home will report the passing of your loved one to the Social Security Administration.

4)     Do not sell or promise to give away any of the decedent’s property until you meet with their estate attorney:

It is advisable to meet with the attorney – as early in the process as possible – to review any estate planning documents and see if there are any instructions from the decedent on how various tangible items should be handled. Nobody wants to be in the awkward position of having to explain to someone that the ring grandma promised to her favorite granddaughter has been sold to pay the water bill.

5)     Do not drive decedent’s cars:

The policy’s owner has died, and the policy may no longer provide coverage if the car is involved in an accident where the car is damaged, or someone is hurt. A seemingly innocent joy ride around the neighborhood in Grandpa’s collectible car you were never allowed to drive could end up costing more than you imagined. There are exceptions if you are the estate executor and are using the vehicle for estate-related affairs. That being said, some things are not worth the headache, and if you already have a vehicle, use your own.

6)     Make sure insurance policies remain in force:

The concept here is simple, it is important to maintain insurance on assets that will be inherited. The last thing you want is for the decedent’s house to burn down after property insurance lapses. The same applies to other big-ticket items, boats, cars, high-value collectibles, etc.

7)     Selecting the wrong person to handle your estate:

Naming someone as your Executor or Personal Representative (person listed in a Will who will settle your Estate), a Trustee (person who has control of your Trust), or an Agent (the individual you listed as Durable Power of Attorney to handle your affairs if you are incapacitated) is a demonstration of great trust. These individuals will have great power over your affairs, your finances, and access to your personal information. Depending on the type of document, they will be able to transact your assets either after you pass away or while you are unable to make decisions for yourself. Therefore, the utmost care must be given when selecting these individuals.

It’s Important to Remember:

Through proper Estate Administration, you can reduce the level of frustration for all key stakeholders that are involved. Even though many of these mistakes appear simple on the surface, the devil is in the details. Be mindful of what they are, and the process will go a lot more smoothly for everyone.

Sources:

https://matthewhartlaw.com/top-10-things-not-to-do-when-someone-dies/

https://www.spencerlawfirm.com/trusts-estate-administration/11-mistakes-executors-make/

https://www.finra.org/investors/insights/when-brokerage-account-holder-dies

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