Think about this situation. You received word that an acquaintance passed away suddenly and you were designated as the person to contact. You met the deceased a few years ago and you maintained a causal friendly relationship. After some time for grief and remembrances, you start to think about the task that awaits you. The deceased never asked you to be his/her personal representative. You ponder: What do I do now? Events like this occur every day. Sometimes the departed is a family member, business associate, friend, neighbor, or your spouse. Handling the affairs of someone who has passed away or who abruptly becomes incapacitated would be so much easier and more effective if there was a frank discussion in advance and there was a file containing the key documents, data, and the location of important items needed to conduct a smooth and orderly transition.
The author of this article has been in a similar situation and knows first-hand the importance of maintaining a “Death/Incapacity Dossier”. Over the years, the list of the items to be included has been edited, revised and generally expanded. Attached to this article is a checklist of items that you should consider organizing in contemplation of your eventual death or possible incapacity. Numerous items on the list may not be applicable and you may want to include additional items based upon your particular situation. It is imperative that your heirs and/or trusted representative know how to access your dossier.
This article is organized to follow the items listed on the checklist. Many of the items are obvious and need no discussion. The article will discuss some of the more noteworthy items.
Personal Data, Key Contacts, and Important Documents
The significance of the first three sections of the checklist, personal data, key contacts, and important documents, should be self-explanatory. The personal data section helps to identify you to someone who doesn’t know you well and may include some items that even a spouse or relative might find useful. The key contact information includes professionals and others whose names and contact information may be invaluable to someone handling your affairs post-death or during incapacity. The important documents section lists official papers and forms that may be required upon passing or with health issue. There are numerous reasons why your spouse may need to know the location of your marriage license, such as to claim what he/she is entitled to receive upon your death. Divorced individuals should include copies of or the location of divorce decrees and judgments. These documents stipulate child support, alimony, property settlements, and the division of retirement accounts. The qualified domestic relations order (QDRO) is a judicial order entered as part of a divorce that allocates retirement and pension plans. The QDRO should also be included if applicable.
The next section of the checklist, essential records, itemizes very important legal documents for your dossier. The first item listed is a durable power of attorney (POA), a document that we all should consider securing. The durable power of attorney grants the appointed person the ability to make financial decisions on your behalf if you are incapacitated. Absolutely the most fundamental item on the checklist is an original will. Your last will and testament assigns an executor/ executrix for your estate, specifies who inherits your assets, appoints guardians for any underage children, and includes other directives. Without a will, the State determines what happens after your death and that may hamper the accomplishment of your objectives.
Fortunately, most NJ estates owe no federal or state estate taxes. The individual lifetime federal estate and gift tax exemption is currently $11.4K ($22.8K per married couple when considering portability. Portability means the exemption amount for the first to die transfers and can be used by the surviving spouse.) This means an individual can make taxable gifts during life plus make bequests to family and friends up to the exemption limit and owe no federal estate and gift taxes. Effective January 1, 2018, the New Jersey Estate Tax was repealed. However, the New Jersey Inheritance Tax is still in effect. The inheritance tax is imposed on transfers to beneficiaries who are not spouses, parents, children, or grandchildren (i.e. nieces, nephews, siblings, friend’s, etc.). The New Jersey Inheritance Tax rates start at 11% and go as high as 16%.
If you don’t have a will prepared, you should consult an attorney as soon as possible. Even though estates taxes have been eliminated or at least mitigated in most circumstances, it is prudent to develop a plan for your estate with a financial advisor and lawyer. Estate plans can limit taxes, help to select a good executor/executrix, establish guardianship, start gifting programs, construct a wise bequest strategy, and create a durable power of attorney. Generally, better results occur through planning. Trusts are commonly employed with estate planning to limit taxes and accommodate the probate process. If you prepared an estate plan and established trust agreements, the location of these documents along with your will and durable POA should be communicated in your dossier.
The last item to be discussed in this section is a letter of instruction. This is an informal communiqué that you may want to include with your other estate planning documents. This is an opportunity to include anything important and helpful that wasn’t included elsewhere in your dossier. A letter of instruction does not hold legal authority, but it can be very useful to the executor/executrix.
In order for a tax professional to properly file the individual tax returns for a deceased or incapacitated person, there is a need to review the filing for at least the previous year. In some cases, the returns for several years may be required. There is often a need to file a return for a deceased person for the current year and a need to continue to file for an incapacitated person. If the individual in question operated a business, those returns need to be filed. When individuals make taxable gifts in excess of the annual exclusion (the 2019 exclusion is $15K per donee), a gift tax return should be filed. The base for gift taxes is cumulative and prior filings are necessary in order to prepare the current returns.
Insurance and Annuity Contracts
Copies of insurance policies and annuity contracts are essential documents to include in your dossier. You should also include insurance policies granted by an employer. It is essential that your beneficiaries know the name of the carriers, policy numbers, and the agents associated with each policy. There are billions of insurance dollars that go unclaimed and are held by state governments. Insurance companies are not required to determine that the policy holder is still living. Organizing this data will permit your beneficiaries to contact the insurers to get what they are entitled to receive. Copies of other insurance policies such as auto, disability, health, home, liability, and long-term care also need to be included in the dossier. Many policies need to be canceled and refunds for unexpired premiums requested. Sometimes lawsuits come up after death or incapacity and coverages need to be understood to protect assets. Fringe benefits plans provided by a current or past employer such as health insurance and pensions for survivors can often be overlooked and need to be noted in the dossier.
Financial Asset Data
A list of bank accounts and on-line information needs to be logged in the dossier. Sometimes account communications are completely online and can easily be overlooked by heirs. If an account goes dormant the assets become property of the State. Specify how the accounts are titled (individual, joint, tenants in common, etc.). It is also necessary to list any safe deposit boxes that you rent and to register your spouse, child, or representative with the bank so the box can be accessed without a court order. Listing investment, retirement, health savings, and education savings accounts will assure that your beneficiaries collect what is due. If there are business interests, appropriate agreements and documents should be included. Information about stock options and restricted stock should be organized in the dossier to facilitate the smooth management of the estate.
Business and Commercial Data
If you have interests in business entities or commercial property, you need to expand your dossier to include the information that your representative needs to continue and or terminate these activities. A succession plan should be developed and added to important documents. Other business items to be incorporated with your dossier include: business name, bank accounts, insurance coverages, loans, key employees, landlord contact data, utilities, website, user names, passwords, and other important information.
Fringe Benefit Plans
Fringe benefits provided by current or past employers are valuable resources and should not be disregarded. Some fringe benefits are available only while working and other continue for the employee and dependents post termination. A list and the support for these benefits along with survivor options should be integrated into the dossier. Items to be considered: life insurance, health coverage, retirement plans, and employee stock ownership programs.
Proof of Ownership, keys, and access information
Your dossier should include a list of your assets, the location of those assets, and proof of ownership. The best practice is to avoid the need for your loved ones to do detective work. Catalogue your important possessions to assure that your heirs don’t overlook something significant. Items to be documented: art, heirlooms, firearms, cemetery arrangements, investments, retirement accounts, vehicles, storage units, and real estate. Along with your assets, you should list your liabilities such as mortgages, loans, and credit cards. Estates are subject to probate, a legal proceeding that requires an inventory of assets and liabilities, appraisals of asset values, settlement of debts, and the distribution of remaining assets. A schedule of what you own and what you owe would greatly assist your personal representative with probate. Your dossier should also specify the locations of keys and account access information such as user names and passwords.
Health Care, Dependents, and Pets
The importance of a durable power of attorney was noted earlier in this article. A medical power of attorney allows the designee to make healthcare decisions if you are incapacitated. If you are incapacitated your caregivers will need to know your medical history, allergies, medications, and medical providers. A living will, health care directive, and do-not-resuscitate order all state your wishes for end-of-life medical care. Your heirs need to know where these documents are located. If you have dependents and pets, you should specify your instructions for care along with their pertinent medical information.
What to close
It would really make it easier for your personal representative to wrap up your affairs if (s)he had a list of accounts (and contact information) such as auto pays, cable, charities, memberships, mobile phone, subscriptions, and utilities to cancel, suspend, or continue if necessary.
Again, in an effort to assist your personal representative and family members and to meet your wishes, you should consider creating notes in your dossier regarding your preferred funeral arrangements and obituary information. A list and contact information of family, friends, and business associates would be very helpful. If you have any business arrangements, they should be chronicled. Also, any personal wishes that you do not communicate elsewhere should be incorporated into your dossier. Finally, if you made any plans for your possible incapacity, they should be included and discussed with your family.
It is difficult to plan for your eventual death or possible incapacity, but it is extremely important. Put yourself in the shoes of your personal representative and loved ones. Compiling your death/incapacity dossier will show that you cared about them and wanted to make their lives progress smoothly. Organizing your records will save your heirs time and money. Plus, it will support your wishes. Final words: have your affairs in order, select your executor/executrix and trustees wisely, and choose your beneficiaries carefully. Please feel free to contact us if you have any questions or comments.
Article by Francis C. Thomas, CPA/PFS
Photo by Suzy Hazelwood from Pexels