Estate Assets

What are non-probate assets and how to recover them?  

When a person passes away, their estate is often comprised of probate assets and non-probate assets.  Probate assets are assets that will be distributed according to the decedent’s Last Will & Testament.  These assets are titled solely in the decedent’s name.

Non-probate assets are sometimes called testamentary substitutes.  These assets have beneficiaries associated with the account or property.  The following are a list of testamentary substitutes:

  • Totten trust accounts, Payable on Death accounts (P.O.D.) or In Trust for Accounts (ITF)-  These accounts allow a person to control their funds and when they pass away the beneficiary listed on the account will receive the funds upon their passing. The beneficiary listed will have to show the bank or brokerage a death certificate to receive the funds.
  • Retirement Accounts- Retirement accounts should have beneficiaries attached to them.  They will pass outside the probate estate unless there is not a beneficiary listed.  To recover the retirement account the beneficiary listed should provide the retirement account company with a death certificate.
  • Life Insurance- Life insurance proceeds pass outside of the probate estate if there is a beneficiary listed. The beneficiary would need to file a claim form and a death certificate to receive the funds.
  • Jointly Held Property- Joint accounts pass automatically to the survivor of the account.
  • Real Property that is held as Joint Tenants with Rights of Survivorship or Tenants by the Entirety- These properties pass automatically to the survivor. The survivor should file a deed to clarify the chain of title. For more information on how real property can be titled, click here.
  • Trust Property- Property that is funded in a trust will follow the terms of the trust and pass outside the probate estate. The trustee must follow the terms of the trust.

 

Daredevil Dan Example:

Daredevil Dan went to the Bronx to watch the Yankees play.  He was too engrossed in his bucket of chicken fingers at the game and was struck by a foul ball, and that was the end of Daredevil Dan.  Daredevil Dan went to Ira K. Miller & Associates and executed a Last Will & Testament.

Daredevil Dan had a joint bank account with his wife, Brittany, with $25,000 in it.  He had a retirement account with $100,000 which had his wife designated as his beneficiary. He owned a property in Red Hook solely in his name. He owned a property in Park Slope with his wife titled as tenants by the entirety.  He owned a brokerage account worth $20,000 which was titled in trust for his son, Thomas and he owned a bank account with $40,000 in his name alone.

According to these facts, the non-probate assets that would go to Brittany would be the joint bank account for $25,000, the property in Park Slope, and the retirement account with $100,000.  Brittany should have the deed for the property in Park Slope changed solely to herself as surviving tenant by the entirety.

Thomas would be able to collect the $20,000 from the brokerage account by providing them with a death certificate.

The probate assets in Daredevil Dan’s estate would be the property in Red Hook and the bank account with $40,000 in Daredevil Dan’s name alone. The disposition of this property would be controlled by Daredevil Dan’s Last Will & Testament.

 

For questions about probate or estate planning contact  Ira K. Miller & Associates

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What commissions are an Executor or Administrator entitled to?

An Executor or Administrator of a decedent’s estate is entitled to a commission.  The job of the Executor or Administrator is to gather all the assets of the decedent, pay the liabilities, and distribute the funds according to the decedent’s Last Will & Testament or according to the intestacy rules of New York.  The executor or administrator’s commission is based off the size of the estate.

Assets Excluded from Computing Commissions

Certain assets are excluded in calculating the executor’s commission.  Assets not included in the executor’s commission are:

  • Testamentary Substitutes- Assets that pass outside of the estate and have beneficiaries listed. These assets include, in trust for (ITF) accounts, payable on death accounts (P.O.D.),   assets with rights of survivorship, or joint accounts.
  • Real Estate not sold by the Executor
  • Specific bequests- for example, my gold Rolex watch to my son, Jimmy.

How Commissions are Calculated

Commissions for executors and administrators are codified in SCPA 2307. Executor and Administrator fees are calculated as follows:

  • For receiving and paying out all sums of money not exceeding $100,000 at the rate of 5 percent.
  • For receiving and paying out any additional sums not exceeding $200,000 at the rate of 4 percent
  • For receiving and paying out any additional sums not exceeding $700,000 at the rate of 3 percent.
  • For receiving and paying out any additional sums not exceeding $4,000,000 at the rate of 2 1/2 percent.
  • For receiving and paying out all sums above $5,000,000 at the rate of 2 percent.

Executors are also entitled to 5% of gross rents received on behalf of the estate.

Executors Commissions/Fees count as Taxable Income

Executors should be aware that executor’s commissions are considered taxable income. However, inheriting property from an estate is not considered income.  If the executor is a sole beneficiary, they could waive their commissions and receive their funds as an inheritance and not have to pay income taxes.

Daredevil Dan Example

On December 4, 2015, Daredevil Dan went to Ira K. Miller & Associates and executed a Last Will & Testament. The Last Will & Testament left Daredevil Dan’s watch collection to his friend, Ryan.   The remainder of his estate was to be left equally between his son Jeremy, his daughter, Jenny, and his friend Brian.  He made Jeremy the executor of his will.

On March 26, 2016, Daredevil Dan tried to recreate Houdini’s famous water escape, unfortunately Daredevil Dan was not very good at picking locks, and that was the end of Daredevil Dan.

Daredevil Dan passed away with the following assets:

  • A joint bank account worth $20,000 with Ryan listed as the joint owner
  • A 2 family home in Cobble Hill, Brooklyn worth $2,100,000. Daredevil Dan rented the top floor of his home for $3,000 a month.
  • A bank account with $200,000 solely in Daredevil Dan’s name and
  • A watch collection worth $30,000.

What assets of Daredevil Dan’s are commissionable to  Jeremy as executor?

  • He would not be entitled to any commissions for the joint bank account with Ryan. Ryan would become the sole owner of the $20,000 of the account after Daredevil Dan’s passing
  • Jeremy would only be entitled to commissions if he sold the Cobble Hill property. For this example we will assume Jeremy sold the property for $2,100,000. He also collected rent from the tenant on behalf of the estate for eight (8) months at $3,000 a month totaling $24,000 collected in rent.
  • Jeremy would be entitled to commissions from the $200,000 bank account marshaled.
  • Jeremy would not be entitled to any commissions on the watch collection and would turn the watch collection over to Ryan.

The size of Daredevil Dan’s estate would be as follows:

-$2,100,000 for the sale of the Cobble Hill property

-$24,000 in Income from the upstairs Tenant and

-$200,000 from Daredevil Dan’s bank account

Totaling $2,324,000

 

According to SCPA 2307, Jeremy’s commissions would be

5%    of $100,000 =          $5,000

4%     of $200,000 =         $8,000

3%     of $700,000 =         $21,000

2.5%  of $1,324,000 =     $33,100

              $2,324,000       $67,100

Estimated Total Commission for Jeremy as Executor of Daredevil Dan’s Estate: $67,100.00

Jeremy would also be entitled to 5% of the $24,000 in rent collected = $1,200.00

Jeremy’s full executor’s commission would equal $68,300.00.  If Jeremy were to take his executor’s commission, this would be taxable to Jeremy and must be included on his income tax return for the year.

As illustrated above, there are many intricacies in calculating an executor’s commission and administering a decedent’s estate. Contact Ira K. Miller & Associates for help regarding the administration or probate of an estate.

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What is an Ancillary Probate or Ancillary Administration Proceeding?

When a person passes away with real property in multiple states, an ancillary proceeding may be necessary. The primary probate proceeding (if the person passed away with a Last Will & Testament) or primary administration proceeding (if the person passed away without a Last Will & Testament) is commenced in the State and County where the person was domiciled prior to passing away.  Once the Executor or Administrator is given legal authority from the court, that Executor or Administrator can start an Ancillary Probate or Administration proceeding in the State where the decedent owned real property but was not his primary residence.

Daredevil Dan Example:

Daredevil Dan owns a brownstone in Park Slope, Brooklyn and a house in Scottsdale, Arizona which he snowbirds to during the cold Brooklyn winters.  He is domiciled in Park Slope and he spends the majority of the year at his brownstone.  Daredevil Dan went to grab a candy bar from a vending machine, the candy bar got stuck and when Daredevil Dan shook the machine, the machine fell on him, and that was the end of Daredevil Dan.  Daredevil Dan went to Ira K. Miller & Associates and created a will that left everything equally to his two friends, Don and Meg.  He made Don the executor of his will.  Don would have to start a Probate proceeding in Kings County because that is where Daredevil Dan was domiciled.  Following the grant of Letters Testamentary by the Kings County Surrogates Court, Don would then have to start an ancillary probate proceeding in Arizona to gain authority to sell or transfer the Scottsdale home.

Probate proceedings and ancillary probate proceedings can end up being very costly due to filing fees and attorney fees. Both a probate proceeding and ancillary probate proceeding can be avoided with the use of a revocable trust.

Daredevil Dan Trust Example:

The facts in the above Daredevil Dan Example are the same, however, instead of creating a will at Ira K. Miller & Associates, Daredevil Dan created a Revocable Living Trust.  He deeded both his property in Park Slope, Brooklyn and his property in Scottsdale, Arizona into the trust.  The trust terms had Daredevil Dan as the trustee of the trust and upon his passing his friend Don would take over as trustee. The trust terms stated that upon Daredevil Dan’s passing both properties in Arizona and New York would be sold and the proceeds split between Don and Meg. Following Daredevil Dan’s vending machine accident, Don would have legal authority to sell both properties as trustee and would avoid  probate in New York and ancillary probate in Arizona.

If you own real property in multiple states, a trust is a great way to avoid probate and ancillary probate. Contact Ira K. Miller & Associates for any questions you may have regarding trusts, probate, and ancillary probate.

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Joint Ownership of Real Property- Different Ways Real Property can be Titled

Title to real property can be held in three different ways; tenants by the entirety, tenants in common, and joint tenants with rights of survivorship.

Tenants by the entirety- the property is owned by a married couple.  The deed will usually state the parties as husband wife. For example the deed would say “John Doe and Jane Doe, husband and wife” or “John Doe and Jane Doe, his wife.” When one spouse passes away the property will pass automatically to the surviving spouse.

Daredevil Dan Example:

Daredevil Dan and his wife Brittany own property as tenants by the entirety in Park Slope, Brooklyn.  Daredevil Dan tried swimming from the Brooklyn Bridge to Governor’s Island.  He made it to Governor’s Island successfully but caught something swimming in the East River, and that was the end of Daredevil Dan.   The Park Slope property would pass automatically to Brittany.

 

Tenants in Common- the property is owned by more than one person in what could be various percentages. A person with a tenants in common interest can sell or transfer their interest without notifying the other owners. They can leave their interest to a person in their will or if they do not leave a will their interest would pass to their heirs at law.  A person with a tenants in common interest has the right to live in the property without paying rent.

Daredevil Dan Example:

Daredevil Dan, his brother Kenneth, and his friend Adam purchase a property in Bushwick, Brooklyn.  They each own one-third (1/3) of the property as tenants in common.  Daredevil Dan tried a stunt which involved jumping a shark, he failed, and that was the end of Daredevil Dan.  Daredevil Dan in his will left the Bushwick property to his friend, Christopher. Christopher would now be a one-third (1/3) owner of the property and would have the right to live in the property without paying rent.

 

Joint Tenants with Rights of Survivorship-  the property will pass automatically to the co-owner upon the first person to pass away. The deed must state joint tenants with rights of survivorship.  For example, the deed would say “John Doe and Mary Smith as joint tenants with rights of survivorship.”  A joint tenancy with rights of survivorship can be unilaterally severed to a tenants in common titling. The joint tenant would deed themselves their interest in the property from joint tenants with rights of survivorship to a tenants in common interest. For example the deed’s language would be “John Doe with a joint tenants with rights of survivorship interest as party in the first part to John Doe as tenant in common as party in the second part.”

Daredevil Dan Example:

Daredevil Dan and his friend Sophie own a property on the Upper East Side of Manhattan as joint tenants with rights of survivorship. Daredevil Dan was walking down the street when a piano fell on his head, and that was the end of Daredevil Dan.   Sophie would now own the property on the Upper East Side.

Do not transfer or re-title property without consulting an attorney.  For more information regarding the titling of real property, contact Ira K. Miller & Associates

 

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Key Parties to a Trust

key-01   This article will focus on some of the key parties to a trust.  There are generally three parties to a trust; the grantor, trustee, and beneficiaries.

The Grantor or Settlor is the person that creates the trust.  This person will discuss with their attorney their wishes for the trust and the terms that will be drafted into the trust. This is the person that executes the trust.

The Trustee is the person who will receive the property of the trust and accepts the obligation to follow the terms of the trust.  The trustee must be prudent with the property in the trust and is obligated to administer the trust for the benefit of the beneficiaries. A trustee can be an individual or corporation.

The Beneficiary or Beneficiaries are the people who will benefit from the trust property. They have a right to enforce the terms of the trust.

In a typical revocable trust meant to avoid probate, the grantor is usually all three parties.

Daredevil Dan Example:

Daredevil Dan walks into Ira K. Miller & Associates and asks Ira K. Miller & Associates to draft a revocable trust for him to avoid probate.  After his passing, Daredevil Dan wants to leave 50% of the trust to his son Brian, and 50% of the trust to his daughter, Angela.  He only wants Brian and Angela to have access to their money when they are 30 years old. He makes himself the primary trustee and makes his friend Charlie the successor trustee of the trust.

In this trust Daredevil Dan is the Settlor because he is creating the trust, the trustee, because he will manage the trust during his lifetime, and the beneficiary of the trust as the trust says that the trustee shall pay the income to Daredevil Dan during his lifetime and may use the principal of the trust for Daredevil Dan’s health, education, maintenance and support.

Daredevil Dan was lying on a beach in Hawaii when a coconut fell from a tree above him and hit him on the head, and that was the end of Daredevil Dan. When Daredevil Dan passed, Brian was 25 years old and Angela was 21 years old.   Upon Daredevil Dan’s passing, the successor trustee, Charlie will act as trustee of Daredevil Dan’s trust.  He will follow the terms of the trust and hold the money in trust for Brian and Angela until they reach the age of 30.  At that point he will distribute the money outright to Brian and Angela.
Contact Ira K. Miller & Associates for any questions you have regarding trusts.

Estate Administration

Who has priority to act as Administrator of an Estate?

If a person dies without leaving a Last Will & Testament, that person is said to have died intestate.   To learn more about who would inherit according to intestacy, read “What Happens if I Die without a Will?”   When a person passes away without a will, a person needs to be appointed to marshal the assets of the decedent, pay their liabilities, and distribute the remaining funds to the people who would inherit according to intestacy.  That person is called the administrator of the estate. The administrator is a fiduciary and must act in the best interest of the estate.

The person that has the largest interest in the decedent’s estate according to intestacy has priority in becoming the decedent’s administrator. SCPA 1001 lists the order of priority for granting letters of administration.    For example, a wife that has a 50% interest in their deceased husband’s estate has a higher priority to become administrator than a child that has a 25% interest in their father’s estate.

Problems arise and litigation can occur when multiple individuals with the same priority are requesting to become administrator of an estate.  In this situation, the court will decide as to whom should be appointed as the fiduciary.   A person with a higher priority may not be appointed as administrator if there are objection and the proposed administrator may be unfit to serve as administrator.

Daredevil Dan Example:

Daredevil Dan, our crash test dummy, decided to go snowboarding in upstate New York.  Unfortunately, Daredevil Dan was going too fast and snowboarded straight off a cliff, and that was the end of Daredevil Dan.  Daredevil Dan never made it to Ira K. Miller & Associates and died without a Last Will & Testament. Daredevil Dan died leaving a wife and three children.  According to SCPA 1001 Daredevil Dan’s wife would have priority to act as administrator.  If Daredevil Dan’s wife predeceased him, his three children would have equal priority to becoming the administrator of his estate.

 

Contact Ira K. Miller & Associates for any questions you may have regarding Probate and Administration.