The most common question we hear as estate planning attorneys is “what needs to happen after I die?” A lawyer’s answer is always the same: “it depends.” It depends on what you own, how you own it and where you own it at the time of your death. That’s because there are typically three factors at play: legal requirements; tax requirements; and financial requirements.
Legal Requirements typically come from two places: the laws of the state where the decedent resided (or owned real estate), and any specific legal documents describing the decedent’s instructions. State laws form the background framework describing the legal process to be followed in that state. (The process varies considerably from place to place, so what happens in Massachusetts can be very different from what happens in New Jersey.) If the decedent wanted more control over what happens upon death, he or she may have written specifically tailored instructions in a will or trust. Those written instructions then must be carried out by an Executor or Trustee.
Tax Requirements are also varied between Federal law and laws of the states where the decedent resided, owned property, or possibly even earned income. Estate tax laws apply to the transfer of wealth that takes place following a death. Some states, like Connecticut, require the filing of an estate tax return regardless of whether any tax is actually due. (Those states also typically restrict the sale of real estate as an enforcement mechanism, until an estate tax return is properly filed.) And more than one state return may be required if the decedent owned property in different states. A Federal return is typically only required when taxes are owed, but there are exceptions to that rule too.
In addition to estate tax, income tax returns must continue to be filed. How many income tax returns are due will depend on when the decedent died, and what happens to the decedent’s property after death. (Estates and trusts owe income tax, just like people, so income tax returns may continue long after a death.)
Financial Requirements are the most unpredictable, because they are established by each and every financial institution where the decent had any business. If the decedent had checking or savings accounts at three local banks, each bank sets it its own rules. For example, some banks require a surviving spouse to close a previously joint checking account and open a new one, when notified of a death. (This is NOT because the law requires it; but the bank’s internal rules require a new account for “any change in ownership.”) Bank officers get credit for opening new accounts, but typically do not get credit for keeping existing accounts; never mind that the account holder’s entire life is now upended because every automatic deposit and debit must now be re-aligned. Simply keeping the deceased spouse’s name and social security number on account is not a viable alternative because it exposes the affected accounts to significantly greater risk of identity theft and fraud.
Adding to the dilemma, many financial institutions are simply refusing to honor legal documents and the authority that they convey. For example, many of the larger national banks, investment and brokerage companies (and even some smaller local banks) have decided that they will only honor an institution specific Power of Attorney (a form created by them, not one prepared by your attorney). They have decided they do not have the expertise or the manpower required to determine whether an attorney-prepared Power of Attorney is legally valid, who has legal authority and when, and whether it reaches the types of accounts or investments held by the client. Accordingly, these companies will only honor their own forms – which incidentally are intended to protect the institution, not the client. They will not negotiate. They don’t have to. If you don’t like it, take your business elsewhere.
Additionally, the larger financial services companies have stopped responding to written correspondence altogether. Envelopes are returned unopened, and written correspondence will not be acknowledged. This is in part because they lack staff. It is also because they do not want to have to train people on what an Executor or Trustee can or cannot do in each of the 50 states. Instead, institutions have created new “authorized persons” who must be given access to information by the original account holder using their verbiage and their forms. The customer service model has changed. If you don’t like it, leave.
The resulting Venn diagram has tilted SIGNIFICANTLY towards the dominance of the financial institutions. This means that it is increasingly more important for account holders to understand exactly how their accounts are managed by different institutions: e.g., who has access, and how can a designated person be granted access in the event of incapacity. It is also important to understand how your accounts will be handled after your death. How should the institution be notified? Who will be granted access to information? Will new accounts be required? In our experience, Executors and Trustees are now frequently unable to access simple information such as: “whether there are survivor benefits to be collected” or “how to verify the date of death value” of an account that must be reported for estate tax purposes. And lawyers fare no better. Probate Court Decrees are now routinely rejected. And only calls from an account owner (who may now be dead) will be responded to by customer service representatives.
All of these changing rules make account consolidation, access to a dedicated advisor, and use of institution specific forms more important as new tools in the planning process. It is now more important than ever for you to understand the rules of the institutions holding your money.
Account Management Checklist
Banks have been using a “know your customer” protocol for decades. It is now increasingly more important for customers to respond in-kind. We recommend asking the following questions for ALL of your financial holdings, to make sure that the estate plan you design can be effective.
- Will a Power of Attorney prepared independently (not a form specific to the institution) be honored?
- If not, how should an account owner designate an Agent to act on his/her behalf?
- If any accounts are owned jointly, what happens when an owner dies?
- How will the bank respond to a death notification, to protect an account from identity theft? (Will the deceased owner’s name and SSN be removed?)
- Will the surviving joint owner be permitted to keep the same account number after the removal of the deceased owner’s name and SSN?
- Will a duly appointed Executor or Trustee be able to access information related to your accounts after death? (Information should not be the same as control. For example, an IRA might name 3 beneficiaries, but the existence of the IRA and its value is a necessary reporting responsibility of an Executor/Trustee.)
- If information will NOT be provided to your Executor/Trustee, is there any way to grant permission to a designated person in advance? (Can someone be designated in the company records as an “authorized representative” and will that designation be honored after your death?)
Depending on the responses to these questions, consider the following:
- Can any problem areas be addressed with consolidation of accounts in a customer-friendly institution?
- Would shared access with a dedicated financial advisor address any access or information deficits?