WHEN DEATH STRIKES
I. INTRODUCTION
Probably the most tragic event for a client is the death of a loved one. As planners, much of what we do is help clients avoid the adverse consequences of death by implementing strategies prior to death.
An equally important element in the planning process is taking the appropriate steps after death to make sure all of the necessary transition events are properly accomplished. Many of the problems that arise following the death of a loved one are not the result of poor pre-death planning but are the result of poor post-death implementation.
We are going to present a checklist of actions that should be considered when death strikes. The checklist is in order of time priority. Our intention is that the checklist will be a valuable aid to assist a family in dealing with the death of a loved one.
Every individual or family has circumstances that may give rise to different kinds of needs. This is a basic checklist that will serve as a useful starting point.
II. A CHECKLIST
1. The Immediate Steps
Most of the steps that should be taken post-death do not have to be started immediately following death. Death is a very emotional time. Usually, the first priority should be to assist the decedent's loved ones in coping with the emotional stress resulting from the loss. There are a few actions that should be taken immediately if they can be accomplished without imposing too much stress on the descendant's loved ones.
The first step is to consider whether the decedent desired to donate transplantable organs. The decision to donate organs should be made quickly. Most transplantable organs must be removed within 12 to 24 hours following death.
The next step is to arrange the funeral. The descendent may have already made plans with a funeral home. These arrangements might be found in the will or another document.
Part of the funeral arrangements process will be to decide whether the descendent will be buried or cremated. Efforts should be made to determine whether the decedent has left a written or expressed desire in that regard.
Most funeral homes will assist with all of the actions in connection with the funeral and burial or cremation, including transporting the descendant's remains to and from the funeral home, obtaining death certificates, submitting death notices to the local newspaper, assisting in the selection of a cemetery and a headstone or marker, and the selection of the casket for burial or urn for cremation.
Family members are often reluctant to control or limit the cost of the descendant's funeral and burial. However, they should be aware that costs can vary dramatically.
2. Gather Basic Estate Documents
After the funeral and when the decedent's loved ones are emotionally ready to move on with the post-death procedures, the next step is to gather basic estate documents. The documents identify people who are to have control and responsibility for postmortem actions and specify the disposition of assets.
These documents typically are the will; living trust; life insurance trust; other trusts of which the descendent was a beneficiary, trustee or grantor; life insurance policies with identification of the insurance company and policy numbers; qualified retirement plans and individual retirement accounts; documents evidencing beneficiary designations; annuity contracts; and buy-sell agreements for interests in closely-held businesses (including partnership agreements in which the decedent was a partner). It is important to have these documents in the possession of the individual(s) who will implement the post-death checklist.
3. Identification of Control People
Once these documents are located, the next step is to identify the people who will have control over the descendant's assets. The key roles include:
1. The personal representative or executor of the client's estate.
2. The successor trustee of any trust of which the descendent was a trustee.
3. The trustee of any new trust to be set up as a result of the death.
4. The guardian for any minor children if there is no surviving parent.
5. Any person who may replace the descendent as an officer, director or managing partner of any closely held corporation or partnership.
It is important that these key players be identified early in the process so control of these matters can be transitioned quickly and mistakes can be avoided.
4. Engage Professionals
Another early step in the postmortem process is to engage the necessary professional advisors and consultants to assist in the postmortem process. These advisors are typically an attorney, an accountant, an insurance agent, a financial advisor and one or more appraisers.
5. Authorize Control People
After key players and advisors have been identified, the next step is to give the control personnel the legal authority to perform their responsibilities.
6. Identify Beneficiaries and Heirs
The next step in the postmortem process is to identify persons who are entitled to receive the descendant's property and other benefits as a result of the death. These are known as beneficiaries. Another category is called heirs. Heirs are individuals who would be entitled to receive the descendant's property if there was no will. Often, the beneficiaries and the heirs are the same people, but occasionally they are not.
7. Identify Assets and Liabilities
One of the most important, and too often the most difficult, aspect of the postmortem process is identifying the assets and liabilities of the descendent. It is crucial to know what these are and to have all detailed information in order to file the necessary federal/state estate tax returns and to file the probate inventory if the estate is going through probate. The documentation needs to include items such as account numbers of checking/saving accounts, with account balances and the names and addresses of the banks; account numbers and asset lists of brokerage accounts; and the legal description, addresses and the tax identification numbers of all real estate. These types of details are needed for all assets.
8. Identify Sources of Cash For Immediate Needs of Dependents
Another important element in the postmortem process is to make sure that dependents have immediate access to sufficient cash to provide for their needs during the period between the death and the date the assets in the estate are distributed. This period of time is usually a year and can as long as two to three years. This financial aspect is important because death itself generates high demand for cash to cover funeral and burial arrangements.
9. Arranging For Payment of Estate Taxes
There is another post-death cash need that requires early attention, even though the need for cash is nine months after the date of death. This is the payment of estate taxes. As the assets and liabilities are identified and approximate values are determined, a projection should be made of the estimated amount of estate taxes.
10. Disclaimers
As a general rule, the estate plan of a descendent is locked in place as of the date of death and cannot be modified thereafter. There is one exception. It is call disclaimers.
A disclaimer is a means whereby a beneficiary elects not to receive assets otherwise distributable to him or her as a result of the descendant's death.
11. Income Taxes
There are a number of steps that need to be taken following death that relate to income taxes. An individual income tax return will need to be filed for the descendent by April 15 following the calendar year in which the descendent died. Federal and state income taxes are due on income received by the descendent from the beginning of that calendar year until the date of death. This income tax is a liability of the estate and should be shown on the federal estate tax return as a deduction.
The surviving spouse can file a joint return for the year in which the descendent died as long as the surviving spouse does not remarry during the year.
12. Allocation of Assets For Distribution
The last step in the postmortem process is distributing the assets to the beneficiaries. The process requires a careful analysis to make sure that the best allocation is made to serve tax and non-tax purposes.
The principal requirement is to allocate the assets among the beneficiaries consistent with the descendant's directions as set forth in the will or trust.
520.884.7550
jpw@financial-architects.com
3971 E. Paradise Falls, Suite 114
Tucson, AZ 85712
United States