What you need to know about what parents leave behind
Dealing with the myriad bits and pieces of a lifetime, left behind when your parent(s) die, is a massive chore that must usually be accomplished at a time when people are grieving. Attending to all of those details takes much more time and dedication than anyone who hasn't been through it expects.
What should you do with all of their belongings? How do you legally close out the estate? How do you deal with that IRA that lists all the siblings as beneficiaries? What should you do with all of those family and vacation photos?
“It can be an overwhelming challenge — especially for people who are grieving and/or may live far away from the deceased parent,” said Gloria Bersani, co-director of MySolutions, a nonprofit service of Lutheran Life Communities, which lists move management among its services.
Being the executor
The first thing you want to do when someone dies, other than making funeral arrangements, is to locate the will and verify who is named as the executor. Don't assume you know because parents sometimes change their wills without telling anyone and sometimes they bend the truth to preserve family harmony while they are still alive.
“It is important, if possible, to broach this subject when your parent is still alive. Ask where the will is stored and who their attorney is,” said Nancie Dorjath, an attorney with offices in Batavia and Oak Brook who specializes in elder law.
“And when you are drafting your own will, it is best if you communicate with your children about it. Let them know that who they name as executor has nothing to do with love. Choosing an executor is more about naming someone who has the time to do the massive amount of work involved and the willingness to treat it like the important job it is. An executor has a lot of responsibilities and duties that go along with the job. It is also best to name someone who lives in the same state as the deceased, if possible. It just makes things easier.”
Next, you need to call an attorney and meet with him or her to determine if probate is necessary or appropriate, to get direction on how to handle the various pieces of the estate, and to record the will with the county within 30 days.
“The executor needs to figure out what assets and liabilities are out there and then the attorney can give advice. I tell my clients that one of the best ways to track down assets is to look at recent tax returns to see what interest income has been generated and where it came from,” she said.
When it comes to liabilities, think about not only funeral expenses and medical bills, but also about credit cards, car payments, unpaid loans and even mortgages if they still own a house or condominium.
“And when a person dies, the Social Security number dies with him or her,” Dorjath said. “So the executor needs to obtain an EIN number for the estate. That is how the government tracks income and it will be the number that goes on future tax returns that must be filed yearly until the estate is settled. An attorney can help you get such a number.”
Dorjath said getting professional legal advice can save an estate thousands of dollars. If you consult with someone who knows the rules, they can make the job much easier and can let you know if probating the will through the courts is necessary or beneficial or if the time and money involved can be avoided. They can also let you know when it is legal to distribute funds, investments and other properties and how to accomplish it properly.
For instance, typically IRAs and 401(k)s may not be part of probate proceedings, so they can be split and distributed immediately, while assets involved in probate may not be distributed until as least six months after probate is concluded (so that creditors have time to make claims against the estate).
“That is why it is important to spend time going through everything, trying to locate all pertinent documents, before you meet with the attorney. Then be sure to bring it all with you to the meeting. Sometimes there are land trusts and other complicating factors and the attorney can better advise you if he or she can see everything and get the whole picture,” she said.
If it is determined that the estate does need to be probated, Dorjath said the executor will be issued “letters of office,” allowing him or her to sell the parent's stock and accomplish other tasks on behalf of the estate.
“The executor also has a duty to follow the terms of the will, to the letter. There is no leeway. They have to follow the rules and they have to protect and preserve the assets as much as possible by not investing estate funds in risky investments and by not co-mingling estate funds with any other funds,” she added.
“Sometimes being named executor is not a blessing. It is a curse. So think of it as an important and difficult job that someone has to do and don't be upset if your parent named someone else to do all of that work,” Dorjath said.
Tackling the residence
Dealing with your parents' home is also easier if you have had conversations with your parents and listened to their stories about how and where they acquired various items. It helps you judge what should be kept in the family and what can be given away, said Bersani of MySolutions.
“If they got an item from someone that they didn't even like, it won't be so important to make sure that someone keeps that particular item for future generations,” she said. “On the other hand, tell them that you want to honor them as they would want to be honored, so ask them if there are certain items that they desperately want to stay in the family and why.”
After a death, collect the important documents for the executor and attorney first, and then work jointly to set goals for emptying the home. Come up with a master plan for distributing some items to family, selling others, donating still others and throwing others away. You should also consider the family dynamics and try to pace yourself, Bersani said.
“But don't rush. Know the person and their habits and make sure that you don't overlook any hidden money and jewelry, especially if your loved one experienced cognitive changes. Check hiding places carefully and talk to the people who were important in their lives to avoid missing something important,” she said.
“There should always be only one ‘chief' driving the process and once that person is identified, the work should be prioritized and delegated,” she said. “You don't want to spend every Saturday for a year going through the house. Set a timeline and stick with it and don't be afraid to ask for help from a professional or others who knew him or her.”
Some families tell everyone to take back any valuable items they gave the deceased. Others have estate sales within the family, issuing board game money and letting everyone “buy” the items they want until they run out of the money they were issued. Then they can dig into their pockets and buy additional items with real money that goes into the estate or finances a family pizza party.
If you decide to have an estate sale, hire a vetted professional who knows what will sell and how to price items. If you want to donate items to a charity, see if they offer a pickup service.
If your family has lived in the area for many years, consider donating special items and interesting photos to the local historical society.
As for the items that need to be disposed of, be sure to consider the environment. Take leftover medicines to a local medicine disposal facility. Call your municipality to find one. Recycle what you can and throw as little as possible in the actual garbage, Bersani said.
Inheriting an IRA correctly
One of the most misunderstood of all inheritances or financial instruments, according to Ed Slott, accountant, author and president of Ed Slott and Co. LLC, is the Individual Retirement Account (IRA) that you inherit from someone other than your spouse — like your parent. If you discover you have inherited one of these, proceed very cautiously because there are a number of errors you can make that will cause you to lose the entire IRA. And once you commit those errors, there is no correcting them, cautioned Slott, an expert on IRAs.
“The scary thing is that most IRA advisers are very good at getting you to make the initial investment, but don't know anything about beneficiaries and post-death distributions,” Slott said.
“You can make a great return on your IRA but if your heirs do something that causes the entire account to be immediately taxed, what is the point?”
If you are inheriting the IRA from a spouse, the procedure is pretty straightforward. You can just roll it over. But if you are inheriting from a parent or someone else, the rules are more complicated.
No matter what anyone tells you, the first rule is: don't simply retitle the IRA in the name of the beneficiary. It will become immediately taxable. Instead, the IRA must be correctly retitled to call it an “Inherited IRA — name of the deceased and date of death — for the benefit of: Beneficiary name.”
If there is more than one individual who are named as beneficiaries, the IRA must be divided and then separate IRAs created, following the same titling formula with each beneficiary's name on the appropriate account. It bears noting that you can only do this if there is a beneficiary form for the IRA. If there is no beneficiary form and the heirs are only named in the will, that creates a whole new set of issues that will require expert assistance, Slott said.
(Time out here: Do your children a favor and make sure there is a beneficiary form attached to your own IRA. If not, call your IRA broker and ask for one. Then, fill it out, file it with your broker and keep a copy with your important papers. And try not to mix individuals and charities as beneficiaries on the same IRA because it complicates matters and could prevent your children from taking advantage of an extended payout. If you want to leave IRA money to a charity, Slott suggested you do it through a separate IRA. Also, review that beneficiary form once a year and update it based on divorces, deaths and births. You don't want your ex to get your IRA unless that is your actual choice.)
Generally, by the end of the first year after your loved one's death, beneficiaries must take their first IRA distribution. Or, if the IRA holder died before taking that year's distribution, beneficiaries must take the required distribution before the end of the calendar year. That first year (if they didn't take their distribution), the amount taken must be based on the deceased's age.
After that first year, distributions must continue to be taken, but they are then calculated based on the beneficiary's life expectancy, Slott said. If a distribution is missed, a 50 percent tax penalty is levied, so take that money.
And if your parent didn't review their IRA beneficiary form regularly and you find that one of the beneficiaries preceded him or her in death, the money is split between the remaining beneficiaries. A portion only goes to the deceased beneficiary's heirs if that is clearly spelled out in the correct legal language on the beneficiary form.
To connect with an Ed Slott-trained financial adviser, visit www.irahelp.com/find-an-advisor.
Preserving photographic evidence
Dealing with the boxes of photos, slides and film you find in your parent's home can be a massive task, in and of itself. The executor may very well designate another trusted family member to comb through and decide what to do with these tangible reminders of your lives together.
If your parent is still living, make a point of going through the albums with them when you have time and asking them to identify people and events in the photos. Write the names on the backs of the photos using a No. 2 pencil — no pen, said Lindsay Rice, executive director of the Mount Prospect Historical Society.
If your parents are already gone, once you determine that a box is nothing but photos, you can generally set them aside until the estate is settled and you have the time to leisurely go through them. It can be an enjoyable task if you take your time.
The best way to preserve those special slides is by using a slide scanner, Rice said. They can be purchased for between $40 and $150 at major stores like Best Buy and can be connected to your PC using a USB cable.
Those old 8 millimeter films of Christmas mornings and first steps can be preserved onto DVDs by photo services at places like Walgreens.
As for prints, they can be scanned using a flatbed scanner that is connected to your computer. Plan to store them as .jpg or .tiff files, using a resolution of 400, Rice said. Keep in mind that .jpg files take up much less room on your computer than .tiff files do. Purchase an external hard drive if you plan to store a lot of .tiff files.
The originals can then be stored between polyester or polypropylene sheet protectors that are available from archival stores and prevent yellowing and degrading. The sheets should then be stored in a safe, climate-controlled place where flooding is highly unlikely.
If a photo is curled when you find it, you can flatten it under a heavy book, as long as the photo is still malleable, Rice said. But if the photo seems to be hardened and permanently curled (especially if it has been stored in a tube), you probably want to consult a professional preservationist.
All of these tips also apply to paper documents like birth and marriage certificates, Rice said.
And if you want to share those priceless photos and interesting documents with family members, consider downloading them onto CDs and mailing them to siblings, cousins and other interested family members. If you are more Internet and technologically savvy, you can also consider sharing them through an Internet sharing site like Dropbox (www.dropbox.com/home) or Google Drive (www.google.com/drive/).
“The basic accounts are free, but the price increases if you choose to get more storage space,” she said.