Death and Taxes - The Blog

Creditor as Administrator

Section 9-3(j) of the Illinois Probate Act allows a decedent's creditor to act as the administrator of the decedent's estate (but only if there's no one else able and willing to act).  I don't know of many cases where a creditor would want to assume this burden, but it's important to realize that, in doing so, the creditor-administrator assumes all of the regular duties of an administrator.  For instance, the creditor-administrator owes a duty to ALL beneficiaries and creditors of the estate, not just himself.  That includes a duty to maximize the value of estate assets.  A funeral director in Connecticut who was named administrator of a decedent's estate (presumably to get his own bill paid) ran into problems with this issue, as described here:

Bridgeport Probate Judge Paul J. Ganim made clear Monday that he plans close scrutiny of Coventry funeral director Kevin K. Riley's administration of an estate in which a deceased woman's home was sold for $175,000, then resold less than four months later for $305,000.

Stealing a Decedent's Property

On an almost daily basis I hear stories about how this grandson or that daughter walked off with a decedent's property immediately after the decedent's death.  The biggest problem in most of these situations is one of proof -- you may know what grandson or daughter did, but can you prove it?  The executor in this case went to the police, who quickly connected the dots in the case of grandma's missing furniture:

The antique furniture was reported missing from the residence of the late Margaret Christian, 208 Center Ave., Surgoinsville [Tennessee], on Nov. 6 by the executor of her estate, her son Elbert Christian Jr.

Surgoinsville Police Department Officer Scott Fink said he interviewed Elbert Christian, who suspected that the burglary might have been committed by a relative. Fink said it was just by chance that the next relative he interviewed, Christopher Todd Christian, 34, 2114 Main St., Surgoinsville, admitted to taking the furniture with two accomplices.

Fink said he then went to speak to the two alleged accomplices, Mike Thomas Head, 54, and Ronald Keith Nunley, 48, both of 114 Henderson St., Surgoinsville, at their home and found the majority of the stolen antique furniture there.

The three men were arraigned today.  Bravo to the executor, for not letting the grandson get away with this, and bravo to the police for pursuing the wrongdoers.

Trustees, Loans, and the Duty of Loyalty

While there are Illinois statutes telling executors and trustees what they may do, there really aren't many statutory references to what they can't do, or to the general duties a trustee or personal representative owes to the beneficiaries.  These duties are generally a creature of caselaw, which makes secondary sources an important research tools when disputes arise over a fiduciary's conduct.

Take, for instance, the trustee who loans money from the trust to himself.  The first question is whether the trust document allows this (most trusts don't).  If not, the trustee may ask, "but what's wrong with doing this?"  One answer comes to us from Bogert’s Trusts and Trustees (§543(J)), which says that a trustee who loans trust funds to himself…

brings into play a conflict of private and representative interests. As lender it is his duty to get the best terms possible as to interest, security, and maturity. As debtor his impulse is naturally in the direction of getting the money at the lowest rate and often on other terms not advantageous to the lender. If he lends to himself, he cannot give an impartial judgment as to the adequacy of the security offered.

In other words, think about the terms and conditions a trustee would impose if a third-party came to him and asked for a loan from the trust.  Would he make the loan?  What would the terms (interest rate, repayment dates, etc.) be?  Even if the trustee isn't trying to put himself ahead of the trust beneficiaries, he can do so in ways large and small.

What's the penalty if a trustee loans money to himself?  Traditionally, when a fiduciary makes a loan to himself, “he is chargeable with principal and interest, or with any profits he makes thereby, at the option of the beneficiaries. Where a trustee uses trust funds in his own business, he is chargeable with principal and interest or with a pro rata share of the profits of the business at the option of the beneficiaries.” Scott on Trusts, §170.17 at 387.

Executor Article and Checklist

This article offers a "two-fer" in terms of information: telling people how to choose an executor, and giving executors a list of their duties.

Del Close's Skull and the Executor

On Tuesday I spoke briefly about executors trying to honor a decedent's wishes, even when it may mean that the estate's value isn't maximized.  On a somewhat similar note comes a follow-up regarding the estate of Chicago comedy legend Del Close.  According to his Wikipedia entry, Mr. Close "donated his skull in his will to the Goodman Theatre for use in Hamlet productions, on the condition that he should receive credit in the program as Yorick." Now his executor has admitted (here - registration may be required) that "she tried to carry out Close's wishes, but pressure from the morgue caused her to instead buy [and give the Goodman] a skull from the Anatomical Chart Company in Skokie."  Alas, poor Mr. Close!  We knew him well -- and his wishes weren't honored.

Steps to Take After Death

I've spoken in the past (here) about the importance of a "bye-bye" file.  If you have older people in your life (parents, friends, even a spouse), it's also a good idea if you have a list of what needs to be done when someone passes away.  The Wall Street Journal explains more in this nice article (registration required).

There may be some duplication on the lists, but at least nothing will slip through the cracks.

Settling Claims in Probate

I've spoken a little about this before (here), but entities with claims against a decedent's estate have their backs against the wall from a leverage perspective.  During your life, you may pay off your credit card bills ASAP because of the fear that your credit rating will be harmed by doing otherwise.  But dead men neither tell tales nor have credit ratings.

In order to collect on a debt owed by a decedent, a credit card company or other creditor will have to hire attorneys to monitor the probate, file a claim, make court appearances, negotiate a settlement, etc.  That takes up a lot of time, energy, and money.

In my experience, businesses (especially big businesses) trying to collect on a debt owed by a decedent are willing to negotiate a reduction in their claim in return for immediate payment.  For instance, today I negotiated a reduction in a credit card debt, from $33,000 to under $25,000.  Everybody wins:

1. The credit card company gets paid ASAP.

2. The estate saves some money.  However, note that the savings are offset by the fact that the difference between the debt owed and the debt paid is income to the decedent's estate.  Even so,...

3. I as the attorney can feel good about having saved the estate $5,000 or so.

The moral of the story for executors is: don't be shy about negotiating with the estate's creditors.  You have nothing to lose but the decedent's debts!

Considering the Corporate Trustee

This MarketWatch article gives a nice overview of the issues involved in selecting a corporate trustee to handle your affairs (after your death or incapacity). 

I think a lot of people get scared by the idea of using a corporate trustee (or executor) because of fee concerns -- most corporate fiduciaries will charge annual fees of at least 1% of the value of assets under management, whereas family members acting as trustee or executor may not take a fee at all.  Of course, the old maxim that "you get what you pay for" might be applicable here. 

If you don't have any close family members who can handle the various tasks required of a fiduciary, or if your affairs (either assets or family relationships) are complicated, a corporation may be the way to go.

If you are interested in a corporate trustee or executor, I'd start by interviewing two or three different institutions, to get a sense of fees, procedures and the like.

Attorney as Executor

I am occasionally asked to act as executor or trustee for my clients.  I'm somewhat reluctant to do so, but in some cases it's a necessity -- some of my clients simply don't have anyone else in their lives who can do the job.

In these cases, I have to go through a fairly extensive disclosure of all of the reasons why you might not want your attorney to act as fiduciary, including but not limited to the conflicts of interest that arise...

-due to the fact that I will be executor/trustee and the attorney for the executor/trustee; and

-as a result of the standard exculpatory language I include in my estate planning documents.

I then have my client sign the disclosure and consent to my acting as fiduciary.

The Dangers of Co-Executors

A lot of clients want to name co-fiduciaries in their estate planning documents -- co-executors in their Will, co-trustees in the trust, co-agents in their powers of attorney.  There is a very good reason why this isn't always a good idea -- columnist Bruce Williams talks about it in this article.

The Illinois statutory forms for powers of attorney do not allow co-agents, and with good reason.  Co-executors or co-trustees can be used with success, but you need to have the right people for the job.  And I don't think I'd ever recommend having more than two executors or trustees -- that seems way too unwieldy.