Additional Steps To Administer and Settle Any Arizona Estate

Data Current as of: 09/04/2010

If You Desire Instant Help - Download Our Services Retainer Agreement HERE

As you may surmise, the first tab that included the first 8 Steps of estate settlement here in Arizona was your "initiation" as the new estate manager.  Now, we get you fully immersed in the details in this section. You will go from mostly observation during the first 8 Steps to direct action on the next 8 Steps on this page. Step 9 starts with your empowerment to act in the capacity as estate manager.

Remember again, even if the "Steps" process seems overwhelming, don't be dismayed as we are here to assist you along the way, at reasonable fees any time you need help. Also, if you are the one appointed as estate manager but now feel you've been handled a dirty job (although obviously someone has to do it), you may want to take a look at this DIRTY JOB.  (Then click your "back" button so you can start on Step 9)  In contrast, maybe it won't look so bad after all.  

Step 9

Empower Yourself To Act as the Estate Manager 

The rubber hits the road now and you are the driver!  We use the term "estate manager" loosely to cover your duties as estate Executor/Trix, as estate Successor Trustee, or for both of these duties.  If the estate was intestate at the death of the estate owner, you are the assumed person in charge, subject of course to the probate court's endorsement needed to empower you to act.  When or if you are court appointed, you will then be known as the estate "Administrator/Administratrix".  So, regardless of your title, we will call you the estate manager and you can consider us your estate "coach".

We hate to have to remind you but... if you have continued to use the deceased estate owner's General Power of Attorney instrument (GPOA) after death, don't use it anymore.  It is now an invalid instrument and the use of it after death is not legal, ethical, and hopefully -- not even possible.  (we know of cases to our horror and surprise -- where it was used after death with institutions)

Most but not all financial institutions would reject it (especially if you used it and didn't mention the party was deceased) if they knew a death had occurred. Sadly, some financial firms do not train their staff properly. They concentrate on check fraud, electronic thefts and other illegal activity when in fact, using a GPOA after death has occurred is fraudulent as well! Arizona law dictates specifically that the use is only legal and allowed during the time the maker is disabled and unable to make financial decisions - WHILE STILL ALIVE!

We are going to give you guidance (general legal information) so you can empower yourself first as Executor/Trix of the estate as long as your first Steps shows you have a self-administration, validly signed Last Will & Testament.  If a Trust exists, it is most commonly the main planning instrument, but we will guide you on how to empower yourself for both legal instruments which you should find in the trust papers or portfolio. 

If you want to be formal, yes you can get together and read the Will. This is most common of course when a law firm is hired after the death, or it was pre-planned prior to the death for this purpose.  In some cases, the lawyer or lawyers of the firm will be named to serve as the estate Executor/Trix. And, they may very well invite you in for a reading of the Will.

But, many estates are quite simple in nature and quite a few estate owners implemented simple estate plans to avoid legal talent being necessary now by using "probate avoidance" tools such as joint tenancy deeds and accounts, payable upon death account titling (TOD or transfer upon death is now more common wording), beneficiary deeds, funded living trusts, etc.

Therefore your Will empowerment and whether the Last Will is even controlling or necessary right now is a clear process in this Step to determine if empowerment is required.  We say this because probate avoidance tools often will work but just as often, they can break down. That is why you will need to discover their effectiveness right now.  That starts by reviewing the legal documents you have and other devices the estate owner may have employed.  Even if you don't find a valid Will, you may be O.K. with other devices you may discover that bypass it.

Here's why:

The following supersede the Last Will & Testament instrument for estate asset transfer purposes, as long as no restrictive contingencies exist: (some of those restrictive contingencies are so noted and normally require legal advisor/lawyer help if they apply to your estate administration situation)

1. Payable upon death accounts that are known as TOD or "transfer upon death" registrations, which simply name a living and competent beneficiary that survives (hopefully or you may have trouble with these), or otherwise, a valid Money Care Power of Attorney instrument that can makes changes before a death occurs.

2. Joint tenancy accounts with rights of survivorship that have a living and competent co-joint tenant survive, or otherwise, a valid Money Care Power of Attorney instrument.

3. Beneficiary Deed beneficiary or beneficiaries who survive the deceased estate property owner leaving real property (real estate) to a living and competent beneficiary or beneficiaries in this real estate transfer mechanism legal in Arizona, or otherwise, having a valid Money Care Power of Attorney instrument for any such beneficiary or beneficiaries now deemed disabled or incompetent or unable to manage their financial affairs.

4. A properly funded Living Trust instrument with qualified Successor Trustees that survive the Trustor (Creator of the Trust), or are the surviving spouse and are competent, or otherwise, have a valid Money Care Power of Attorney to manage estate assets that are both "in" or "out" of trust.

5. Other conveyance vehicles such as a Tangible Personal Property list (limited in power), or a legal assignment instrument such as a "Chattel" Assignment form used to transfer personal property.  Also, a buy-sell agreement funded with life insurance policies and other business continuation legal contracts that may exist if the deceased was still active in his or her own business at the time of the death.

Important Note: If you find a contingency, you most likely need a legal opinion. You will need legal counseling regarding any requirement now for a conservatorship for a surviving spouse who is unable to manage his or her financial affairs.  Since only a licensed lawyer can represent ANY disabled estate owner in Arizona for annual court reviews of how the estate assets and affairs are being managed under a conservatorship, a legal referral will be made to you if we discover this in working with you. If you are working on your own, be sure not to ignore this important review area when contingencies are discovered or are known by you.  Failing to follow Arizona statutes could have a devastating affect on you and your own assets should it be later found you ignored applicable statutes that apply to the disabled. Or acted in a contrary way to the statutory "prudent man" rule.

To avoid a conservatorship in your own estate, explore getting proper power of attorney documents at:  M.D. Anderson, AZCLDP

Just go to the next step where you will find out about your "Letters" needed to be drafted and filed in the proper Arizona probate court if indeed, you need to empower yourself now (after doing the research we just mentioned) to act as the estate Executor/Trix.

In a common Arizona living trust, you should be the first appointed Successor Trustee of the trust.  If two are named as Co-Executor or Co-Successor Trustee, then empowerment instructions include both parties. Or, you should be the surviving spouse and Trustee if the trust your spouse had was a joint marital trust between you.  If you are not part of the trust in such cases as re-marriage, significant other cases, and perhaps some situations that may elude the author at this time, then you most likely are subject to the control and decisions of other family members who were appointed.  We understand in that case, that you are a resident of the home most likely and of course, for now, no one has the right to say you can't continue on living there for the time being.

Or, you could be named as a Co-Successor Trustee to act together with a family member in cases of re-marriage and yet, having a joint trust between you and your deceased spouse to control certain assets you owned in trust together, or that are meant to be left to you now. 

Regardless of the situation, please note that a very stringent Arizona statute exists regarding transfers to your name while your spouse was still alive but while he or she was mentally unable to manage his or her affairs.  If this may applies to you, contact our office for a referral to a lawyer who will discuss the situation with you privately.

By now, you should have had the time to review all estate documents and instruments that you feel are controlling and in force for estate settlement purposes.  And hopefully, you now possess the last signed versions or revisions that were created prior to the death.  In these documents, to serve now, you should have a Living Trust with yourself appointed as the first Successor Trustee.

Once empowered, you will need to take action and get things done. To do that, you need to wait until the death certificates come back.  While waiting, you now have time to draft a simple empowerment form that incorporates the notation of what estate legal document gives you authority. 

Though we don't publish these forms online, we have a library for your use to create your own credentials to act as the Surviving or Successor Trustee right now.  We do ask that you request them and tell us the format (Word, Word Perfect, PDF, etc.) you want them in and we will respond with free "samples" for you to use or model after.  There is no obligation or cost for this request.

Ask MD For Trustee Empowerment Forms

Just be sure to ask for professional help whenever the road forks, an obstacle appears, or even if you run out of gas!!!  (Financial advisors can assist any time you need them)

If You Desire Instant Help - Download Our Services Retainer Agreement HERE

Step 10

Enter Into Informal Probate Proceedings (When Required)

We will address informal probate only on this site as any formal probate here in the state of Arizona will require the services of a qualified Arizona attorney, preferably certified in estate settlement management services.  (Or at least very experienced) 

Reason: Though Arizona law doesn't require a lawyer to represent you in filing for a formal probate, the reason you file for formal probate is the same reason why you logically, would never want to do so by yourself. YOU WOULD ALWAYS WANT A LAWYER!

Some court procedures, such as filing a conservatorship, do require a lawyer to represent the interests of a mentally disabled or handicapped estate owner while still alive. It is important to understand that ANY formal judicial proceedings should always include qualified legal representation with few, if any exceptions!

At this point, one may ask when is informal probate allowed and when is formal probate required? Let us explore our Uniform Probate Code, first passed in Arizona in 1972. (Uniform in that it is the same as other states in the country that also adopted the UPC) A probate (usually required because you are over the dollar limits) may be filed in an informal manner if there is an uncontested will, or in the absence of a will, if all of the heirs (beneficiaries that are all identified and alive) agree to the informal filing procedures. Most probate filings in Arizona are of the informal nature. 

If there is no will and it is not possible to get the agreement of all of the heirs (identifiied and found estate beneficiaries) , or if there is some kind of a dispute among the heirs or legal proceeding pending, then it is necessary to file a formal probate here in Arizona. 

There are several major differences between the two types of probate. In a formal probate proceeding, the Court holds a hearing to appoint the Personal Representative (Exector/trix of the Will).  A hearing is not necessary in an informal proceeding.  A formal probate in the state of Arizona may be either considered as a "supervised" or "unsupervised" proceeding.  If the heirs really can’t agree on something important, even as to the identity of a Personal Representative, then the Court may order a supervised administration.  In that case, the Personal Representative must obtain Court approval before selling or disposing of any estate assets. 

For our state, the most formal proceeding would be a formal supervised probate, with a formal supervised closing. It is possible however if all of the heirs agree, (even if a probate is started formally), to close the estate matters informally.  In a formal closing, the Court must approve of all of the actions of the Personal Representative, including the payment of any costs or fees.  In an informal probate the Court does not hold any formal hearings unless requested by an interested party. And once the letters to empower the Personal Representative are properly filed and the court fees are paid, the payment of estate bills, fees and costs as well as estate asset transfers or sale of estate asset and final distributions are all done informally by the Personal Representative on behalf of the beneficiaries.

Therefore, a probate can be filed either informally or formally. What may dictate that choice are the circumstances surrounding you as the estate manager.

For estate managers who want to explore the process to enter into an informal probate we are providing specific links to the counties in Arizona who offer self service centers (Arizona Supreme Court) or Self Service Online Forms (Superior Court)  And, our services as well to assist in document preparation of needed forms for filing, administration, and then closing the probate estate.

We recommend you visit either the physical Self Service Centers or the online Self Service Centers so the forms and instructions can be reviewed and you can get a much better understanding of the process. Even if you hire us to prepare forms for eventual informal probate court filing, you can learn the procedures and then decide how much help you may feel you want. 

Our company forms are more customized in appearance if you hire us to prepare your legal documents, but most courts should receive and allow you to file both the free self service and our customized forms, as long as they are formatted and filled out correctly.

For those who do not use computers or who want to read "real" legal books and forms in a library setting:

All Arizona Self Service Centers (Physical Locations)

For those who will need to enter into informal probate, various Arizona Superior County courts provide online forms and instructions (PDF or Word formats) for you.  Be careful, as some sites include both the formal and informal probate forms:

Maricopa County

Mohave County

Pinal County 

Pima County

Other Counties: You may be able to model forms from the above sites for filing in your unlisted county. Be sure to check with the county first to see if allowable.

Hint: If you don't think you need estate legal advice, our option to hire us is about half price over using a discounted lawyer referral from the self help site.  So, shop and compare and then decide which way you want to go. This site is provided to you for the purpose of doing the estate settlement on your own as "resource" material and general legal information, but also having the option to retain us just in case you need help along the way. You can read our retainer agreement (and print and execute it) online.  If you retain us and don't use your starting or remaining retainer fees paid to us, our company retainer agreement clearly states a refund will be issued to the estate within 10 days of the final accounting date.  The final accounting date is defined as the day we are notified that our services are either terminated or completed.

So, use us as an "insurance" policy to watch your back for you as you go through the Steps.  We will only bill for actual time in reviewing the legal document work you have already created on your own, or when we assist you in other estate matters, such as accounting or tax preparation. Of course, if we refer you to legal help sources when it is discovered a legal opinion or a complicated legal procedure is going to be necessary -- the legal firm's billing rate will apply and you will deal with them directly.  Since most of the process is accounting, inventory, tax work and document preparation, you can be assured we have handled just about every estate contingency over the past 19 years of doing estate settlements here in Arizona.

Step 11

Contact the Social Security Administration

This action most likely was done by the funeral home that normally will send a "Notice of Death" automatically as part of their required procedures.  The key is to notify the Social Security Administration of the death so the number assigned to the deceased estate owner can be cancelled. 

This is a short step, but if you want to make sure the administration doesn't overpay and then later come back to "remove" the overpayments from the bank account  electronically, we recommend you contact them early.  If you want to close the account that Social Security payments are paid into, wait until you know all final adjustments, if any, are made first.   

If you are a surviving spouse, or a widow with young children still under the legal age, then you need to contact them as well for the small death benefit payment, possible payment to help you with funeral costs, and to set up your new benefit amount that must be adjusted based on your deceased husband's former payment and your social security credits and benefits you are now eligible for.  We in no way promise to be Social Security experts, especially under the new government that can change and adjust or deny benefits at the drop of a hat!

Contact information here in Arizona is provided for your Step 11 fulfillment:

 Arizona Social Security Offices

Step 12

Inventory The Safe Deposit Box (And Other Estate Home Contents)

Arizona law used to require a revenue officer to be present before you could open the safe deposit box of the deceased estate owner, so they could inventory the contents.  This law was repealed and no longer applies.  But, the idea of having someone present when you FIRST open the box and discover the contents, is not only a good idea, it is a smart move as well for you serving as the estate manager. 

To learn more about an actual case of Safe Deposit Theft with ongoing online commentary, just click on the picture at the left, then be sure to click on your back button to come back to finish the rest of Step 12.

If you reviewed the story about the deceased aunt's Safe Deposit Box being cleaned out by a stranger, then the tone is set for your work in this step. If the estate owner told a family member 10 years ago that gold and silver coins were packed into the box, you can bet that they will be looking at you for answers if you open the box on your own and report back that they aren't in there!  Even if the truth is known by you that the coins were cashed in 7 years ago to buy that new Mini-Winnie motor home, there is going to be controversy.  A simple cell phone video or picture snapshot taken while you first open the box could easily record your event.  Having a witness with you and in a picture or two will also be a smart move for this task.

If there is no safe deposit box, there is still going to be boxes and other hidden places that will  uncover items you might not expect. So, the advice is the same.  Inventory items early on in the estate settlement process and document your work perhaps with a daily journal of your findings, if not with pictures or using a witness by your side.  Easy to use software programs are also available. Eventually, the value of these personal belongings (tangible personal property) items you inventory will be transferred to your Final Estate Inventory.

Steps 2 and 4 have referenced the need for an estate inventory or for appraisals on higher valued items.  So, we are addressing the "rest" of the stuff you have awaiting your observation of what is valuable and what is not.  In other words, we are talking about the rest of the items in an estate home. This can include furniture items, collectibles, clothing, electronics or just boxes of stuff that will require you to look through to determine what is in them.  Family members are great recruits to help you in this process. 

Our firm can also assist in any area of inventory control or we can make a referral to a company who will inventory your estate items as long as you agree to sell them at public auction.  It is all up to you as the estate manager to sort through everything you find in the estate home or additional homes if that is the case.  The old George Carlin LP record album about "Stuff" will ring true by the time you get done...

If You Desire Instant Help - Download Our Services Retainer Agreement HERE

Step 13

Legal Review In Cases of Medical Abuse, Neglect or Medical Mistakes or Malpractice 

This step is not meant to imply we are playing "rainmaker" for a law firm.  We are not. But, sadly in this day and age, we find as estate advisors -- more and more cases of elder abuse, neglect or medical mistakes prior to death. It could be caregivers in the home or that came to the home, caregivers in nursing, hospital or hospice care. 

The key for your purpose as estate manager is the screen.  You should already be aware of any suspect activity that may have taken place. If there was no activity noted, please just go to the next Step at this time.

However, if any of these items seem suspicious or perhaps even outright obvious, there is a two step process we recommend you consider. First, allow us to prepare a "facts" sheet for you so the relative circumstances and a proper timeline of events can be established in an orderly fashion.  We are an expert Arizona Certified Legal Document Preparation (AZCLDP) firm with extensive experience in documentation of your situation for any possible further legal process's you may decide to pursue with a qualified attorney that would represent you. 

The second step is to take our professionally prepared "facts" sheet to any attorney appointments you may decide to have so that the cost factor will be as low as possible and you will have the best chance to present the facts, and only the facts, so that the legal firm can decide if the case has value for pursuing justice. 

Other Legal Reviews To Consider

There are a few other reasons to seek a legal review in the estate settlement process:

1.  If the deceased estate owner may have been involved in any litigation case prior to death which could payout an award in his or her favor, the estate must remain open. This would become an asset of the estate at that time, so closing the estate is not possible until any legal solution of the matter is resolved. We assisted in an estate case for an international client whose attorney won a nice settlement in a lawsuit previously filed, but the client died before the award payment was paid out. , so we know it is a contingency that could apply in certain estates.

2.  Also, there is a chance that the deceased estate owner suffered a substantial capital loss in securities or real estate investments that may have happened prior to the death. Though this possibility is extremely high for current estate owners passing away after last years massive slaughter of wealth in the securities and real estate fields, the legal issue only applies in certain situations.  One would be if it is apparent to the survivors that there may have been senior abuse due to failing mental capacity in investment decisions made by an outside advisor unduly influencing money decisions.  More obvious cases would be when investment advisors managed the funds for the senior client and did so with full discretion. 

One only has to review any available "risk" statements required by every brokerage firm to see if the advisor was sticking to the best wishes of the client, or following his own path which may have included churning the account to generate higher commission earnings from it or investing in riskier investments than what was authorized by the client's original or amended risk statements.  You can request these statements from the firm when you suspect foul play.  There is one thing certain.  If the estate owner was trusting someone else to invest his or her money and loss's took place, time is of the essence to review the situation with a qualified securities litigation attorney because the statute of limitation here in Arizona may be looming for filing a valid claim.

To find out more on this subject, we provide a case preparation service and an alternative investment vehicle that protects capital so that NO LOSS can take place with it. Read more about it at PRESERVE MY CAPITAL.COM

 3.  On the negative side, if the deceased estate owner died in a motor vehicle accident or incident, and could have caused it with his or her automobile, boat, motor home, even a motorcycle -- you may find the estate is facing litigation from the other party or parties.  If you are going to enter into probate, there is 4 month minimum required probate requirement to solicit claims from them. This procedure administered within the probate proceedings in Arizona courts requires that you publish for a certain number of consistent months, a statement that invites any who may have a claim against the estate (deceased owner)to notify you as the Executor/Trix. Your notification could indeed come with a process server dropping a lawsuit off at your door! 

We aren't really sure if the full statute of limitations which is normally one (1) year, could still apply in probate cases. So, if you are going through probate, an estate closing is going to be delayed at least until those 4 months expire.   And if a potential claim against the estate or surviving spouse comes in, be sure to seek a professional legal opinion on your options right away.  They will give you the "Steps" in that case.

If probate is not required because the estate had the protection of a well funded living trust such as what we provide to our estate planning clients, but a potential lawsuit looms or is possible, be sure to again get a legal opinion as far as to procedure (Steps) as most trusts do not restrict the trust to wait for distribution to heirs nor do they suggest or mandate that you duplicate the probate step of publishing a creditors solicitation for anyone wanting to make a claim against the estate. But, if a legal liability exists, your legal counselor will guide you on when it is safe to distribute assets, how much to hold back, etc.

In larger estate cases that face litigation, savvy estate lawyers may design a plan that let a small amount of estate assets go into probate for this purpose while most of the assets are held in a LLC with a trust owning the shares of the LLC.  Used a lot in the medical profession, the party suing chases the small amount of assets in probate while the larger assets silently transfer without restriction to the trust Qualified Beneficiaries who receive the good stuff away from the direct reach of any lawsuit! He calls this strategy the 'Blood from a Turnip" plan.

O.K., we don't practice law so this is being published purely as general legal information for those it applies to.  (Maybe you are now an heir of a large estate?) After 34 years of estate planning practice, owner M.D. Anderson has seen some really intelligent ideas in estate planning design and strategy. But, he has seen an equal amount of estate plans that eventually fall short of their goal.  He likes the aforementioned strategy for high asset or income clients. And, especially for clients that are in high potential litigation occupations. And, he can refer you to a qualified lawyer in the Valley if you are interested in more details.

Step 14

Manage The Estate Money! 

It's True.  It really isn't fair to you as the estate manager to have to suddenly engage into multiple financial management areas that you may not have any real training or knowledge in.  You probably have never had to wear this many hats in your lifetime! We understand that and for that reason, we also have recruited plenty of "reserves" in all areas of financial practice that are now available and ready to relieve you of any area you just don't feel comfortable in. 

Probably the biggest area of practice is the management of the estate money and other estate assets that produce income or gains.  Or loss's!  The value of the estate is pegged for tax purposes and documentation purposes as of the day of death value of each account or other estate asset and liability.  But, by the time the closing takes place (your last Step in this online informational manual) there is nearly a 100% chance that estate assets (and liabilities) will change.

They could go higher or they could go higher.  Let me give you an example.  If your loved one passed away in August 2008, estate assets could have dropped in just a few months as much as 50%!!!  And, if they owned GM or Chrysler stock...a 100% loss of value may have applied.  Can you imagine the utter pain in trying to administer an estate that keeps falling each month and the heirs start blaming you for not protecting the assets?

For your protection and maybe even your sanity, we are suggesting that the management of certain estate assets is not for the faint of heart or the uninformed. If you are a real "pro" in money management, accept our apology and kindly skip to the next Step.

For everyone else, please think about how history repeats itself.  Could that scenario we just depicted happen again and while you are in charge?  Does history repeat?  Do you want to risk your own personal assets to give away someone else's?

Sure, the market could go up on your watch.  Real estate properties could continue to rise as it appears they are now doing again in most Arizona cities.  But, the questions remain.  Answer them fairly and then react as you need, so that you sleep well at night while managing the estate affairs, and so the heirs also sleep well at night knowing you are doing everything a fiduciary should be doing to protect and preserve the inheritance assets that will be distributed to the heirs.

Few will criticize you for keeping the money from going down in value even if you produce little or no gains. But, everyone will criticize you if you lose principal belonging to the estate while under your watch.  The tax laws give some fantastic benefits under the "stepped up" tax rules for estate assets that have grown over the years. All estate capital assets are revalued as of the day of death (DOD) so that the estate and the heirs do not have to pay any income tax on them!

But, if you try to do money management and goof it up, no tax law is going to favor losing value in estate capital assets.  And some people are just plain mad at the world enough to sue you if they feel you do anything wrong! Are we telling you to liquidate securities into cash accounts or sell real estate that could plunge again in values just to protect yourself?

Nope!  We can't give investment advice on securities, but we know  professional money managers who can.  Maybe you should request a referral in this area.  Your duties as the main financial fiduciary of the estate as well as Arizona statutes (remember you were supposed to read those that apply to your position?), require you to protect estate assets.

Step 17 will soon address all estate real property including the estate home, any vacation property, land, commercial property or interest in the state of Arizona or throughout the U.S.

We will now leave it up to you to think about this little pep talk on money management, than decide for yourself how you are going to manage the estate assets, even if for a very short time before you are authorized to distribute them.

Step 15

Establish Estate Asset "Basis" for Tax Purposes 

This Step may require a meeting or two with your current accountant or CPA, or you can use our firm to go over estate assets that may need clarification to their "basis" for tax purposes.  But first, we need to define what "basis" is. Basis pertains to the estate inventoried assets that by now, should have most of the rough figures for values stated on your inventory worksheet or system.  The IRS has different rules based on the size of the estate but we are going to define in simple language, what applies to MOST estates here in Arizona with our current federal law.

Simply, almost all assets you have control of now (or we hope by now you have gained control), are "stepped up" at death. This means that the tax basis the deceased estate owner had just prior to death was increased upon death so that the asset was valued for tax purposes EXACTLY as if there was never a gain.  Now without wanting to complicate this too much, we must also report that the IRS will "step down" an asset that has fallen in values. Since a big change is coming soon, at least for one year when the federal inheritance tax is removed but insidiously stupid tax law replaces it regarding stepped valuation, we won't go into great detail on "Stepped Down" valuations and how they work.

The best thing in this Class 101 on Asset "Basis" valuation methods is to say that all capital assets are currently stepped up at death so that there is no taxable gain*.  A good example of a stepped up valuation and how it would benefit the estate would be to take a certain stock account or mutual fund account that as best you can tell by the estate papers, past tax returns, or actual investment confirmations - was purchased for one payment of $50,000.

* This covers you as of the day of death for your new basis value purposes.  Any increase in values or decrease in values on a capital asset you inherit after the day of death will add or subtract from your newly established basis figures! 

Then, over the years, by your review of annual tax returns and annual tax reporting statements from the broker, you have determined that additional shares of stock were purchased in the account with all dividends and capital gains that were reinvested.  The original 1000 shares (@ 50 per share) now shows that over the holding years, the reinvested dividends and capital gains have purchased additional shares which on the day of death, now total 1350 shares.  On the day of death (or month of death), your requested DOD values show these shares were worth a total of $94,500. (And your documentation is nicely filed in your traveling file...right?)

Based on this example, one could quickly jump to a conclusion that Uncle Sam is going to get some of the inheritance too!  

But, let's break it down what really happens under stepped up tax rules:

Value Now:                                $  94,500

Original Investment:                $  50,000  (1000 shares @ 50 per share)

Reinvested Purchases:          $  28,000   (350 shares averaging @ 60 per share)**

**  Should have been reported on annual tax returns and thus, have already been taxed!!!

Total Basis Before Death:      $  78,000   (1,350 shares now owned)  

We can then see the investment had an actual gain of $16,500 prior to death and a pre-death basis of $78,000.  The current federal tax bill in 2009 on this gain if sold prior to death would be a maximum capital gains tax of 15% or $ 2,475.  Add in another $825 or so that goes to the state tax coffers and you would have a total income tax bill in the estate on just this asset of $ 3,300 had the investment been sold right before the death.

But, since in our example it was held and not sold, the last part of this example requires we apply the current stepped up valuation rules that all heirs will still receive on all capital assets held prior to death when the estate owner dies before or in 2009.  We can instantly step the value up now to $ 94,500 which becomes the new Stepped Up value to the heir. If they were to sell the investment right after receiving it (and assuming share values remained the same, then they would have saved $3,300 in estate assets that would have been consumed in the estate to pay the taxes on investments sold prior to the death.

 SO...NOW DO YOU UNDERSTAND WHY WE TOLD YOU TO ORDER THOSE DOD VALUES? 

By the way:  Many investors fail to add reinvested shares to their "basis" figures when they come to their accountants at tax time and report sales of certain capital assets that allow reinvestment of profits and income back into the investment vehicle.  A good accounting/tax preparation firm will help the client discover their trust basis, which is something we do quite often with our own tax clients. A good firm will save you more than they cost you...

But, back to reality, now that death has occurred -- the time of discovery for establishing a tax basis on every estate asset is crucial so you can determine any estate liability if you later sell the asset or convert "in kind" to one or more heirs.  These transfers of accounts, deeds to home, etc also transfer the "basis" to the asset.

YOU MUST ESTABLISH basis on all assets in your care and control now and so this Step, may be one of your biggest tasks to date.  AGAIN, YOU MUST determine investment basis on all investments including all real estate properties. 

Many of you will be glad to hear that most investments are "capital investments" for IRS stepped up tax treatment purposes -- but not all.  Suffice it to say that you can relax if you are also an heir of this estate you are in charge of now. If not an heir, after doing this Step, you should be able to give reasonably good news to the estate heirs regarding your results that should be able to avoid any big tax bill if you or they sell the asset after receiving it.  The greatest misconception we find early on in our complimentary first meeting with prospective estate settlement clients from the manager and heirs is that they believe their inheritance is going to be taxed!  Well, that just isn't true for most of you, or at least - it wasn't true up until now.     

But now, if your loved one dies in 2010 (and the law doesn't change), this article will give you all the reasons to seek a professional opinion on "Basis" questions. For smaller estates, there is no big tax problem even next year, but read the article to give yourself proper perspective on what is coming soon: 

End of Stepped Up Basis during 2010

By the Way: We are assuming Stepped Up Basis will return again in 2011 as outlined above. But no one knows for sure as of Fall/2010.

If You Desire Instant Help - Download Our Services Retainer Agreement HERE

A Special Warning For Surviving Spouses or their POA Agent:

If you are a surviving spouse or have POA on a surviving spouse of the deceased estate owner, please seriously consider a short meeting with our firm to review stepped up basis rules on ANY investments you may feel now feel should be sold. This includes homes other than the main home and/or other real estate investment property. If any investment or real estate, notwithstanding the main home that has either a $250,000 or $500,000 exemption from taxable gain, is sold prior to the death of the surviving spouse, tax traps could cost the estate a lot more money!

This is because many older estate owners still title assets in joint tenancy with right of survivorship.  By IRS statute, all JTWROS assets by the nature of this property titling are subject to only allowing a stepped up value upon the first death of two joint owners to the decedent.  The survivor's share remains based on actual costs paid to invest.  This normally exposes 50% of the gain to taxation!  And, higher ordinary tax rates could also apply on investments structured and held in JTWROS for less than one year before selling them.

Alternatives normally exist by using credit or by finding "other" investments to liquidate that may not have tax bills attached to them. A professional tax consultant can help you plan the best strategy when a cash flow problem presents itself to surviving spouses or their caregivers/money managers. In some cases, re-titling an asset can avoid tax traps. 

We can help you preserve estate assets that would otherwise be paid out in needless income tax payments. Just ask.

If There is a Trust, Review All Trust Provisions

This area of estate settlement is our specialty!  We started in 1991 to study the trend for Arizona seniors to start putting their assets in trust.  Starting with a law firm at first, we soon branched out on our own to create our own master documents that have been praised by all trust companies, banks, brokerage firms, and even law firms who have reviewed our master documents prepared for our own trust portfolio clients over the years.

What we can say after almost 20 years experience with our own trust portfolio practice, is that it still amazes us when we see large estate homes and assets still go into a needless probate because the estate owner either didn't understand this alternative to probate or had a legal advisor who felt the probate process was better.  The problem in that approach is simple.  Better for whom?

O.K., the dirty laundry is out.  As an heir, estate manager, or both, just take the hint.  A well prepared living trust with a portfolio of all other legal documents you need is the better approach for most, as it is almost always going to be more cost effective then allowing the estate to be exposed to the probate process. But, having said that, we must address the living trust that hopefully you have in front of you, as you tackle this Step. If there is no trust you are aware of in the estate you are managing, skip ahead to the next Step. If there is no trust but there is real estate, it is very likely you will discover the estate home or other estate properties will need to be cleared first with the probate process if there is no surviving spouse at this time.

Your extra work load in having to enter into probate will later encourage you to reduce the Steps required to settle your own estate some day. If that planning is already done and doesn't include a living trust, chances are good you will change your mind and then change your estate plan as soon as you can, so that probate is avoided for your own loved ones/survivors. To learn more about living trusts here in Arizona, please take a few moments to review our sister site:  Arizona Living Trust Information

For those that have a trust, let's get started.  The trust you have in front of you by now needs to be read.  You can do it, or hire someone else to do it for you. If you want legal opinions on the trust, such as on a provision you find that restricts an inheritance (and you don't understand it), we whole heartily recommend you do that. Let us refer you to a lawyer if you feel you need a legal opinion. But, if it just comes down to not understanding exactly what it says, we can provide you the general legal information (translation?) so that it can be better understood and followed.

Some trusts have impressive and well stated legal language that most can understand.  But, other trusts have poorly stated legal language that no one can understand...even us!  Most trusts are somewhere in between and with a little luck and with a small law dictionary by your side, we are confident that most of you can read and understand the trust on your own. 

It is especially important right now that you review the sections on the Successor Trustee and on Beneficiaries (now known under new Arizona Trust Code Statutes as "Qualified Beneficiaries").  Also, review the allocation of the Trust assets. If there is a surviving spouse, notice that he or she has exactly the same power to administer the Trust as before the death of the deceased spouse.

Note: If there is no surviving spouse, you can skip the next three (3) paragraphs.

Or if a surviving spouse is now disabled, that power is reserved for the Durable General Power of Attorney agent first appointed to serve in cases of disability of the surviving spouse.  If the GPOA agent was the deceased estate owner, as long as a second agent was named to serve, there will be someone in charge and granted the power under that instrument to act for the benefit of the disabled surviving spouse.

The power in the GPOA will either be pre-authorized in the instrument or you will normally need to obtain medical statements from one or two attending physicians of the disabled surviving spouse.  We say this because you are the appointed Successor Trustee, and we also know there is a good chance you were appointed to serve as the GPOA agent as well. You can use the GPOA to carry out money care decisions for any surviving spouse unable to carry out their Trustee/Trustor duties because of ailing health. This is as long as the instrument authorizes interaction with the trust.  If it doesn't, then you may have to abandon the instrument for money decisions and just use your Successor Trustee powers instead. 

Again, if there is a disabled surviving spouse who is the remaining Trustor and Trustee, and there is authorization in the GPOA to interact with trust business, please note that Arizona statutes do not forbid it and many estate advisors will tell you to do this to avoid the need to file two tax returns each year. In other words, the declaration of the trust as being "irrevocable" upon the disability of the surviving spouse is delayed by using the GPOA instead of your trust powers. If you want to use your trust powers regarding a disabled surviving spouse, or are forced, contact our office for a free sample you can use to empower yourself. Or, you can hire us to custom prepare the document as well if you like, for a small fee. 

Though your full trust powers may not be allowed until the death certificate comes back, we will assume you are now in your second week of estate settlement work at this time having reached this Step 16. It won't be long before the death certificates arrive and you can be fully empowered to act as the Successor Trustee thereafter if there is no surviving spouse. 

Now, it is important right now to determine if any of the assets are to be immediately disbursed, or are to remain in the Trust for the surviving spouse (if applicable) or for later distribution to minor children. Certain trusts will require you order a separate tax identification number if they are designed to become irrevocable upon the death of the first spouse when married, or upon the death of a surviving spouse or single trust owner.  Though the procedure is simple to request the number from the IRS, since a phone call can get it ordered, the data on the IRS form that must be later faxed in is a little tricky. A professional accountant is your best choice to discuss this procedure or hire to help you.  Again, we can help you once you determine, or together, we determine a new trust tax ID is going to be required.  In almost every case, it is.

You will want to begin some preliminary "who gets what" planning regarding the named trust beneficiaries.  We recommend that you make a "rough draft" list of the approximate values that will be available to each trust beneficiary. The distribution phase comes sooner than you think in settling a well funded Arizona living trust in our Steps process.  Also, look for any gift recipients that may apply right now. Regarding the gifts, they will be distributed first when we get to the distribution phase, so if you find gifts listed, it would be really wise to identify them, tag them and then protect them if they are personal property items.

Also, by now, you should have your rough draft (yellow pad version) done of estate inventory including both known assets and known liabilities.  And, you most likely need to start paying some estate bills with estate money, instead of your own if you have been doing that so far.  In your inventory, hopefully you have identified the assets that are "out of trust" and reviewed the probate limits to see if the "Pour Over Will" will allow you to pour these assets into the trust without requiring a probate proceeding first under our Arizona statutes.

If you are "clear" under the statutes to avoid probate on assets you find out of trust, you will want to re-title these assets into the trust for final distribution and to comply with the trust and Pour Over Will terms. Then, distribution can take place to the trust heirs soon after in most cases.  (The reason it MUST be re-titled and thus "poured over" into the trust, is because the Pour Over Will normally has no heirs listed...other than the client's living trust!)

Once you are empowered as Executor/Trix of the Pour Over Will and Successor Trustee of the Trust, things happen quickly with trust administration.  If you have to file for probate on assets over the limit, the probate court will allow you to use the Pour Over Will to pour the asset into the trust right after you are authorized to act.  Outside of the normal four (4) month minimum creditors publication delay required in probate proceedings and the additional filing or advisor fees and costs of probate, everything will work out with the trust even if you discover you have to make a small detour along the way.

Hint: We have proven trust service forms used and perfected in our firm for almost 20 years that help establish your Successor Trustee powers, and much more.  Call us: to discuss your trust administration needs at 480-345-1616.

Progress Check: If it didn't take a week or more to get to this Step perhaps you have skipped some important Steps by mistake.  You may want to go back and review your past work them to be sure all Steps are done so far.

Estate Tip # 4:  When you inventory estate personal property items, it is a good idea to make an inquiry to all heirs and any other family members, friends, neighbors to ask if they had borrowed anything to the deceased estate owner that was not returned as well as to inquire if the deceased estate owner had borrowed anything to them.  Now, this isn't a normal requirement in most estates, but if you think it could apply in your case, feel free to make the inquiries. 

Additionally, there is a chance that certain family members (including former spouses or children of former spouses) and perhaps close friends may make an inquiry to you if they can have "back" a small gift or gifts that they may have given to the estate owner while alive.  We have seen a lot of seniors in our own legal documents draft a provision to do this very thing when they pass away.

If the item or items requested are not contained on your most current (dated) Tangible Personal Property List signed and dated* by the deceased estate owner, then you are going to have to use the "discretion" part of your empowerment instrument.  To protect your backside, why not get a quorum vote together with the eligible heirs to help you decide the outcome on such matters?

*  Not all lists you find will be signed and/or dated.  So your discretion will also be required whether to act on such lists, or revert these items back into the residual estate.  If items are of high value, a legal opinion from a qualified estate settlement lawyer is recommended.

Estate Tip #5:  Human nature is going to raise its ugly head sometime during this process. And, it most likely will happen on a certain event, over a certain artifact, or will be triggered by a series of events or circumstances you won't see coming. But, if it hasn't already happened to you as estate manager, it is 99.99% certain...it will!

When it happens, just remember who is boss.  You are!  You have discretion to make final decisions.  You have the power to decide what is what.  Just be sure you base your decisions on strong facts, not hearsay.  Document yourself well. Then act. Outside of fraud or gross misrepresentation, Arizona statutes protect you in your position to make the decisions...not the heirs! 

They "Hell hath no fury like a woman scorned". Well, we have heard all the stories from bad estate administrators of the past from our clients and we want to warn you:  Hell hath no fury like an Heir scorned!!! So, tread lightly in murky waters when they flood your path and halt your forward progress.  In fact, just stop in your tracks and tell these angry folks (who may also share your gene pool) to put it on paper if they have a grievance. The flood waters will dry up quickly if you just give it a little time and tact.  Let them know you aren't doing anything until they decide to respect your job and duties placed on your shoulders.  Let them wait. (until they can be civil) Or tell them you are going to sell the item they might be arguing about if the bickering doesn't stop or if they don't agree to your decisions that will consider their written requests only.

Note: Even the baby heir may be mad at you!  (Yes, we are just kidding!)

Just remember one thing -- the deceased estate owner chose you.  There was a reason.  Persevere and ask for help when you need it.  You can't make everyone happy.  Just do the best job you can and it will all work out.

Estate Tip #6:  Don't overlook the need to address the real estate issues early.  Insurance coverage protection changes if a home is suddenly left empty. Risks of theft of estate home items or even appliances and pipes or A.C. units all increases when a home is vacated, even in gated communities. 

Also, in some parts of Arizona, winterization is required to keep pipes from freezing. Or, Mother Nature can suddenly flood, zap with lightening, or burn the home while you are serving as the property manager. And maintenance items alone can become burdensome. Items such as checking for any pipe or water leaks or ruptures, maintaining lawns, clean up after storms, etc., can all take their toll on you, especially if you have multiple estate properties to manage now.  Even if you hire others to do these tasks, the costs can take a toll on the estate checkbook. Over time, trying to hang on to an estate property could actually reduce the eventual inheritance the heirs will receive, especially if another plunge in values were to take place. 

So, please don't skip the next Step 17 that pertains to your need to get real estate valuations for your inventory as soon as you can. And then the second phase of Step 17 -- discussing the reality of selling some or all estate properties after the valuations are done.  With the valuations in your hands, you will then have established the approximate proper listing price for your Realtor® to start the listing process.