Kurt Kunsch:     Ok, and David, they should also really consult with their accountant or tax professional as well, that really work with their team of professionals when executing any will.


Dave Frees:      Great point. When somebody comes to see me one of the very first things that we do, well everybody’s always worried about how much is this going to cost, so one of the first things that we do is to sit down and figure out what needs to be done, and then what of those action items the executor is willing to do and the family, and which of those things the law firm should do, and then we, in my firm, we just quote a flat fee for that.  We say, based upon these things that you want us to do, it’s going to cost this much money so that they know.  Which is nice. 


But one of the other things that we have to do at that point in order to come up with a flat fee is to decide who’s going to file what tax returns.  Ordinarily, we like the decedent’s tax return preparer to file a final tax return for the deceased and then also to file the income tax return for the estate and/or the trust and then we, we as the law firm usually file what are called the death tax returns.  That is, there are accounting firms that do prepare those, and there are law firms that don’t, but what you really want to do is make sure that there’s A) an appropriate break down of who’s doing what between the lawyer and the accountant, and that it’s being done at the best possible price for you. 


Preparing inheritance tax returns and federal and state income tax returns are not something that unless you’re a CPA you’re going to do.  That’s one of those things that you’re really going to pay somebody to do.  Let me make a point about that.  If you’re subject to federal estate tax, and you’re hiring an accountant or a lawyer to prepare these various returns, and you want to make sure the two of them know who’s doing what, that they’re cooperating with one another, we send a memo out to the accountant right away, saying, here’s what we’re doing, here’s what you’re doing, call us if you need any information. 


Those expenses are a deduction to the estate, and at the federal estate tax rate, if you weren’t paying that lawyer and accountant, you wouldn’t get to keep that money anyhow, you might be able to keep $0.50 on the dollar if you were lucky, so if you’re paying lawyers and accountants, these are real numbers, but if you’re paying a lawyer and an accountant collectively $5,000, what you’re really might be paying them is $2,500 is all you would have kept, and if you’re dividing that, you know, three ways, that’s not very much money out of your pocket, and the question for the executor is, is that worth it, and if you’re the executor and you’ve hired professionals to do that, you’re off the hook.  You’re not going to be liable, all you have to do is use your good common sense and pick lawyers and accountants that know what they’re doing.  You have to use due diligence.  But once you’ve done that, you’ve, you’ve, for the cost of maybe a few bucks out of your pocket, you may have totally managed your liability exposure there. 


So that is something to be aware of, and you want lawyers and accountants that are sensitive to those things.  You know, who understand that you are trying to manage liability and understand that you’re trying to manage expenses.  A lot of times people come in by the way, and they ask me, this is just a pointer, unrelated to one of the five or ten mistakes, a lot of times people will ask me what’s you’re hourly rate, and that’s a good question, but it’s really the wrong one.  What you want to know is, what will you do, Mr. Lawyer or Mrs. Lawyer or Mr. & Mrs. Accountant, what will you do, and how much will that cost. 


Because if a lawyer has a high hourly rate, but invests a lot of money in software, in processes, in training, in hiring experienced paralegals that can do things, they may be able to do things for at a much lower rate, so what you really want to know is what’s this really going to cost me.  Whether it’s based on an hourly rate or a flat fee, what’s the real cost going to be. What are you going to do for that and how are you going to protect me for that.  That’s the real question, then you can say am I getting my money’s worth, am I going to be able to sleep at night better knowing that I’m getting good advice and that I’m protected from liability am I’m going to have to do less running around. These are all questions worth asking.  But, what’s the hourly rate is a just a tiny piece of the picture, when what you really want to know is how much is this going to cost.


Kurt Kunsch:     You know a lot of times, I guess, people will come to us in the trust department and you know, I just want to let everyone know, you know, the trust department here at Phoenixville Federal can be named as executor or co-executor, trustee or co-trustee in your estate plans, however, we are not legal professionals.  So we will work with your attorney, we deal with most of the asset collection, and things on the financial end of it for you to make the process a little more seamless and a lot easier, but as far as legal advice, a lot of people want to save a buck Dave, and they say, well, and they ask us questions, we don’t really have the capacity to do that, we can steer you in the right direction, but we will work with your attorney.


Dave Frees:      and that’s a good point, however, I think from a consumer standpoint, it’s important, or appropriate to say to your attorney, if, you know if I’m a co-executor at the bank, and I’m going to do a lot of running around and the bank is going to do a lot of these day to day things, and we’re being paid as the executors, Mr. & Mrs. Attorney, what, you know, what affect does that have on the fee? Because if the law firm is not performing a lot of these services that they might otherwise perform, then that should be reflected in the fee.


Ray Deering:    David, another point I’d like to point out to our listening audience, is one that is so important that we hear over and over again, that the assets that the asset management or the trust department bring in are never co-mingled with the general assets of the bank, so for example, the assets of an estate or the assets of a trust, assets of a custodian account or investment management account are totally separated from all other bank assets and there’s a very good reason for that, I don’t want to go into that now, but


Dave Frees:      and if you’re an executor not working with a bank, you should listen to what Ray just said, because you have the same duty that the bank does, you do not want to co-mingle the assets of a trust or estate with your own.  You are looking at a big liability (coughing) pardon me, problem right there, and that’s one of the things that law firms, or working with law firms and banks should do for you is make sure this is handled in a professional way.  I know that many people will have heard, and forgive me Ray and Kurt, I know this is not you guys, but many people will have heard stories about a trust department, where you know trust money was being held and it wasn’t invested properly, it wasn’t given out when it was needed to be.  I’ve heard those stories to, I have to tell you that in 21 years, I’ve seen lots more individual executors and trustees muck up estates and trusts than I’ve ever seen a bank muck up trusts and estates, and that’s in part because banks, if their trust departments are properly structured have all of these very specific policies and procedures that they have to follow.  That doesn’t mean, by the way, that you should always have a corporate executor or trustee, it doesn’t mean that at all.  It just means you should exercise care in who you’re picking and it also means that if you’re a executor or trustee you should exercise caution and due diligence in getting help, even if it costs a little bit of money after tax, you have to weight that versus your personal liability exposure.  That’s one of the reasons we’re having this call tonight, is I just want people, I’m not trying to say run out and hire a lawyers, run out hire accountants, run out and hire bank trusts departments.  What I am saying is there may be things that you’re on the hook for or legally liable for that you might or might not otherwise know or recognize and that is a place to be a prudent consumer of these services so that you protect yourself.  And that brings us to number six. Which is the failure of executors or trustees to insure the assets of the estate or trust.  This is a big one, because it is potentially catastrophic so this is again, one where you put two, three or four stars.  Whenever an executor comes to see me, may have been several days now since the person has passed away, and they haven’t been appointed yet, one of the first things that we say is, have you found the homeowners and automobile and liability insurance policies.  The reason for that is this.  Once you’re appointed as executor or trustee, it’s your absolute responsibility to have these assets insured, because if for example, there’s a fire, or a pipe bursts and there’s a plumbing leak, and there’s thousands or tens of thousands, or hundreds of thousands of dollars of damage are done, and you as the executor haven’t taken care of your duty to properly insure these assets, again, you can be personally liable.  You could be what’s called, surcharged for these losses to the estate.  And it is very common for elderly people as a way of trying to preserve their assets and reserve their limited resources, to cut way back on these insurance coverages and so especially careful about letting people cars in estates, because if somebody takes that car and their in an accident, and the estate gets sued for hundreds of thousands of dollars in damages, it could take all the assets away.  So you want to look and see if there was an umbrella liability policy, was there a homeowner’s policy, was there an auto policy.  If there were these things, what were the limits, are they sufficient, you may also find as an executor or trustee, that once the house is vacant, no one is living there, that the insurance company will make you get a fire and liability policy rather than a homeowner’s policy because nobody may be living in the house.  And when that happens, the cost is going to go up because the insurance company is insuring for a different risk, which is a vacant home.  That’s why again, one of the earlier things I said is you don’t want to pay the taxes too early or distribute the money and find you don’t have the money to pay the insurance bills.  And to get proper coverage, because that can be a real problem.  So, failure to insure the assets is a big one.  You want to make sure if you’re organizing your estate and thinking about who’s going to be your executor or trustee, that one of the things that you do is put all the information about your insurance policies, possibly even copies of them in the binder that you keep, that we ask all of our clients to keep, with all of their original will and/or trust documents and maybe durable power of attorney in there.  Put all of that information together along with any memoranda that you want your executor or trustee to have.  Telling them where things are and who’s supposed to get what, and important things and important information and philosophical ideas that you want to pass on about your children, and your grandchildren, such as where they should go to school, and should they go to parochial or private or public school, and when should they have cars, all those kinds of things should be documented and you make it much easier on the executor to fulfill this very, very important duty, when you give them lots and lots of specific information including copies of the policies, who the agent is, what the agent’s number is, that sort of information. 

 David M. Frees III Esq.


For up to the minute news about estate, asset, and wealth protection planning
and for weekly tips to make your planning work follow David Frees on Twitter
David on Twitter.

David M. Frees, III
Connect with me
Attorney, Speaker and Author