Category: Trusts & Estates

If an Executor fails to properly administer an estate, it can have severe repercussions for the beneficiaries. An Executor has broad authority to control all aspects of an estate. When an Executor acts improperly, it can delay settlement of the estate and diminish the value of the estate’s assets. If you are a beneficiary of an estate that is being damaged by an Executor, you have rights and can take action to enforce the estate and the executor’s obligations.

Beneficiaries need to be aware that even simple problems, such as an Executor’s failure to take timely action, can substantially damage an estate. I will provide a hypothetical estate to help demonstrate these problems. Suppose an estate consists of the following assets: (i) a car; (ii) a house worth $650,000; and (iii) financial accounts worth $2,000,000. If the Executor fails to list the house for sale, the estate incurs unnecessary property taxes, utilities, and operating costs. The homeowners and automobile insurance policies have to be transferred into the name of the estate, and failure to properly update the insurance coverage may jeopardize coverage. The house and the automobile have to be secured and sold. Failure to take these basic actions places estate assets at risk and incurs unnecessary costs.

The Executor is responsible for filing and paying income taxes and paying property taxes on the house. If income and property taxes are not paid on time, they accumulate interest and penalties. In addition, New Jersey imposes a lien for the collection of New Jersey Estate and Inheritance Taxes.

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What would you do if you won the lottery? That is the big question we ask ourselves as the anticipation builds for the $1.5 billion Powerball drawing. After all, there’s nothing wrong with imagining what we would do if we held a winning lottery ticket or hit the jackpot in a casino.

But for the winners, there are some real concerns. Most importantly is how to protect your asset – the winning ticket. The jackpot will be paid to the person who carries the ticket into the State Lottery Commission office. If you are the lucky owner of the winning ticket, keep it in a safe place. Take time-stamped pictures of the ticket to document your ownership. It is often recommended that you sign the back of the ticket to prevent anyone else from redeeming it. Unfortunately, signing the ticket may limit your other planning options, but it may be the best protection from theft.

Before redeeming the ticket, you also need to decide whether to choose a lump sum or annuity payout. That decision isn’t as simple as it sounds. A $1.5 billion lottery jackpot is really the sum of $50 million annual payments over the next 29 years. The lump sum payout is $930 million – 62% of the advertised jackpot. Neither option is bad, but you must consult with tax and investment professionals to analyze the options. In simple terms, the annuity payout only yields around 2.2% annually, but the annuity allows you to pay the income tax liability over 29 years, instead of paying it all up front.

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If you are unavailable due to injury or illness, is there a plan in place to protect a surviving spouse or your family? Sadly, the answer to this question is often “no.” The lack of an effective estate plan can result in unnecessary delays and financial hardships for your spouse and family. Depending on the circumstances, the impact of these problems can be substantial. A recent New Jersey Appellate Division case illustrates some of the problems caused by an incomplete estate plan and the losses it caused for a surviving spouse.

The facts of this case are relatively straightforward. The Decedent worked as an educator in the early 1980s and created three retirement accounts through his employer. At that time the Decedent was not married, and the Decedent named his sister as the beneficiary of all three accounts.

Decedent subsequently married in 1987. However, (i) the Decedent only updated the beneficiary designation for one of the three retirement accounts to name his wife; and, (ii) died intestate (without a Last Will and Testament). Since the Decedent did not update all of his beneficiary designations, two retirement accounts passed to the Decedent’s sister. The reported value of the accounts passing to the Decedent’s sister was about $114,000. Adding to the problems, the Decedent’s sister only survived the Decedent by about three years.

Not surprisingly, this plan resulted in a number of adverse consequences, including:

• Costly litigation between the surviving spouse and the sister’s estate;
• The loss of $114,000 in retirement accounts for the spouse;
• New Jersey Inheritance Taxes on the retirement accounts passing to the sister’s estate;
• Potential adverse impacts on the distributions from the retirement accounts.

This case illustrates some, but not all, of the problems caused by an incomplete estate plan. Each person’s situation is unique, and there are a number of factors that must be considered as part of every estate plan. As demonstrated by this case, failure to address the circumstances of each case can have major adverse consequences for a surviving spouse and other beneficiaries. It is important that you and your family have an estate plan and that your documents fit your circumstances.

If you have any questions about this case, or the planning considerations that may be unique to your situation, it is recommended that you speak with experienced estate planning counsel.